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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission File No.: 1-8467
BMC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0169210
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE MERIDIAN CROSSINGS, SUITE 850, MINNEAPOLIS, MN 55423
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 851-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
COMMON STOCK NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's common stock (its only voting
stock) held by non-affiliates of the registrant, based on the closing sales
price for the registrant's common stock as reported on the New York Stock
Exchange on March 24, 1999, was approximately $119.5 million. As of March 24,
1999, there were 27,226,380 shares of common stock of the registrant
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I , II and IV of this report on Form 10-K incorporate by reference
information, to the extent specific pages are referred to herein, from the
registrant's annual report to stockholders for the year ended December 31, 1998.
Part III of this report on Form 10-K incorporates by reference information, to
the extent specific sections are referred to herein, from the registrant's proxy
statement for its annual meeting of stockholders to be held May 12, 1999.
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TABLE OF CONTENTS
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PART I.
Item 1. Business..................................................... 1
Item 2. Properties................................................... 11
Item 3. Legal Proceedings............................................ 12
Item 4. Submission of Matters to a Vote of Security Holders.......... 12
Item 4A. Executive Officers of the Registrant......................... 12
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters...................................... 13
Item 6. Selected Financial Data...................................... 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk... 14
Item 8. Financial Statements and Supplementary Data.................. 14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... 14
PART III.
Item 10. Directors and Executive Officers of the Registrant........... 14
Item 11. Executive Compensation....................................... 14
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................... 14
Item 13. Certain Relationships and Related Transactions............... 15
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.............................................. 15
Signatures................................................... 19
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PART I
Certain statements contained in this report are forward-looking
statements within in the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
and are subject to the Safe Harbor provisions created by the statutes. These
statements relate to non-historical information and include, without limitation,
any statement that may predict, forecast, indicate or imply future results,
performance or achievements. These statements are not guarantees of future
performance and are subject to certain risks and uncertainties - such as those
discussed in the section entitled "Factors That May Affect Future Results" below
- - that could cause actual results to differ materially from those expressed or
forecasted. You should not rely on these forward-looking statements, which
reflect only our opinion as of the date of this 10-K. These factors also should
not be considered an exhaustive list. We do not undertake the responsibility to
update any forward-looking statement that may be made from time to time by us or
on our behalf.
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS.
BMC Industries, Inc., a Minnesota corporation ("BMC", "we" "our", or "us"), has
two operating segments that manufacture and sell a variety of products:
Precision Imaged Products ("PIP") and Optical Products. PIP is comprised of two
units, Mask Operations and Buckbee-Mears St. Paul ("BMSP"), which
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share process manufacturing technology and one manufacturing facility. Mask
Operations, the segment's principal business, produces aperture masks, an
integral component of color televisions and computer monitors. BMSP is the
leading domestic producer of precision photo-etched metal and electroformed
parts. Optical Products, through our Vision-Ease subsidiaries, designs,
manufactures and distributes polycarbonate, glass and hard-resin plastic
ophthalmic lenses.
In May 1998, Vision-Ease acquired the Orcolite polycarbonate and hard-resin
plastic lens ophthalmic manufacturing and distribution operations of Monsanto
Company. This acquisition solidified Vision-Ease's position as the leading
designer, manufacturer and distributor of ophthalmic lenses made from
polycarbonate material, which is the world's fastest growing ophthalmic lens
material. Following the acquisition, we dedicated substantial resources to the
integration of the former Orcolite operations into those of Vision-Ease. We
merged technologies, eliminated redundant distribution systems, reorganized
sales and marketing and allocated manufacturing responsibilities by product
type. We also made significant progress on new product development during the
year, particularly in the higher margin premium products category, such as the
Tegra-TM- high performance polycarbonate product line. During the fourth
quarter of 1998, we installed our new proprietary lamination system with retail
customers for testing. This system is designed to produce finished multi-focal
polycarbonate lenses on-site through a simple and quick procedure. In addition,
we completed the move of our low-cost Jakarta, Indonesia glass manufacturing
operations to a new, larger facility and began sourcing hard-resin plastic
lenses through a low-cost manufacturer in Mexico.
Our Mask Operations experienced difficulties during 1998 due to a combination
of market forces and internal shortcomings. The 1997 start-up of two new
lines, one for television masks and one for computer monitor masks, at our
Cortland, New York facility caused disruptions to existing operations at the
facility. These disruptions, which negatively impacted yields on existing
lines, continued into 1998. At the same time, we took longer than expected to
start up the computer monitor mask production line and we built a significant
amount of inventory due to missed customer commitments and internal issues.
While we were addressing these internal issues, the aperture mask market
experienced an imbalance of mask supply and demand, which resulted in
significant price declines in aperture masks, particularly computer monitor
masks. The combination of lower prices and lower yields and higher expenses
associated with product line start-ups forced us to make major expense
reductions. The imbalance of mask supply and demand lead to the shutdown of
three manufacturing lines at our Cortland facility, two of which remained
idle the entire second half of 1998. We restarted one television mask line in
the fourth quarter of 1998. We restarted the computer monitor mask line in
the first quarter of 1999. During the shutdown in 1998, we reduced mask
inventories by over $16 million and established systems to minimize inventory
in the future. We also incurred a one-time charge of $26.7 million for the
write-down of certain PIP fixed assets, primarily related to computer monitor
masks. Finally, in February 1999, we filed an anti-dumping petition against
Japanese and South Korean mask manufacturers for pricing certain masks at
levels we believe are below cost.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Financial information about our operating segments for the three most recent
fiscal years is contained on pages 32 - 34 of our annual report to stockholders
for the year ended December 31, 1998, and is incorporated herein by reference.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
PRECISION IMAGED PRODUCTS
PRODUCTS AND MARKETING. Mask Operations has manufacturing operations in
Cortland, New York and Mullheim, Germany and an inspection facility in
Tatabanya, Hungary. BMSP has a manufacturing
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facility in St. Paul, Minnesota and shares manufacturing operations with Mask
Operations at the Mullheim facility. The Cortland and Mullheim facilities
primarily manufacture aperture masks. The St. Paul facility primarily
manufactures precision photo-etched metal parts, specialty printed circuits,
precision electroformed components and precision etched and filled glass
products. BMSP uses a continuous precision parts etching line at our Mullheim
facility to supply semi-finished precision photo-etched parts, including
those used in lead frames. Four customers each accounted for more than 10% of
PIP's 1998 total revenues, three of which also contributed more than 10% of
our total consolidated revenues for 1998. Thomson, S.A. of France, including
its U.S. based operations, accounted for approximately 17% of our 1998 total
revenues. Thomson produces televisions in North America and Europe under
various trademarks, including RCA and GE. Samsung Display Devices Co., Ltd.,
of South Korea, accounted for approximately 15% of our 1998 total revenues.
Philips Components B.V. of the Netherlands accounted for approximately 10% of
our 1998 total revenues. Matsushita of Japan accounted for less than 10% of
our 1998 total revenues, but did account for approximately 11% of PIP's 1998
total revenues.
Aperture masks are photo-chemically etched fine screen grids found in color
televisions and computer monitors and consist of thousands of precise, conically
shaped holes designed to focus the electron beam on the proper phosphor color
stripe to produce a crisp image. Aperture masks are made from steel or invar, a
nickel and iron alloy, and range in size from 6-inch to 40-inch diagonal
dimensions. We manufacture aperture masks ranging from 14-inch to 36-inch
diagonal dimensions. Our facilities employ an automated continuous photochemical
etching process that we originally developed. We sell aperture masks directly to
color television and computer monitor tube manufacturers in North America,
Europe, India and Asia through an in-house sales staff. Sales of aperture masks
comprised 54%, 61% and 60% of our consolidated total revenues in 1998, 1997 and
1996, respectively.
In 1997, we established a dedicated, low-cost inspection facility in Tatabanya
to inspect computer monitor masks manufactured in Mullheim. This
facility allows us to provide quick response to the Mullheim facility's Asian
and European customers. During 1998, we began transferring an additional portion
of our mask inspection from the Mullheim and Cortland facilities to Tatabanya.
We believe these transfers will result in increased cost savings in 1999 and
beyond.
Since the start-up of our first monitor mask manufacturing line at Mullheim in
1995, we have dedicated significant resources to increasing monitor mask sales
and obtaining customer qualifications. Despite the shut-down of our monitor mask
line at Cortland during the second half of 1998, our concentrated efforts
resulted in monitor masks sales of $36.7 million during 1998, a 79.2% increase
over 1997 sales. In addition, we were qualified on several additional 14 inch
to 19 inch monitor masks in 1998. We restarted our monitor mask line at Cortland
during the first quarter of 1999 and we currently expect to fill this line over
the course of 1999 through growth in the monitor mask market and additional
product qualifications.
We continue to dedicate significant resources to the development of automation
systems for the back end of our manufacturing process. We added automated
material handling systems to two of Mask Operations' eight production lines
during 1998, which followed the implementation of three systems in 1997. We also
made substantial progress in developing an automatic inspection system, which we
tested in concept during 1998 and have scheduled for implementation in 1999.
We are engaged in ongoing efforts to develop the manufacturing and technical
expertise to produce a variety of new products, including high definition
television ("HDTV"), multimedia and pure flat mask products. We have delivered
limited quantities of these masks to customers engaged in these segments. We
believe these efforts position us well to realize the future sales and product
opportunities that are expected to develop in these segments.
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BMSP manufactures precision photo-etched metal and electroformed components. We
sell these components through in-house sales personnel and manufacturer
representatives for use in the electrical, automotive, filtration, medical and
semiconductor industries. BMSP's products currently include switch contacts,
ignition components, medical device components, reusable filtration devices,
precision sorting sieves and etched lead frames. We sell our precision
photo-etched metal and electroformed parts to approximately 200 industrial
users.
During 1998, BMSP continued our strategy of leveraging BMSP's high-volume
precision capabilities to attract large end-product manufacturers for joint
research and product development projects. We continued to make progress with
partners in the automotive and medical industries in 1998. BMSP also achieved
ISO 9002 certification in 1998, which is a critical prerequisite for supplying a
broad base of customers.
INTELLECTUAL PROPERTY. We have a number of patents which are important to the
success of our PIP operations. These patents range in their expiration dates
from 1999 to 2014. We believe the loss of any single patent would not have a
material adverse effect on our business as a whole. We believe that improvement
of existing products and processes and a reliance on trade secrets and
unpatented proprietary know-how are as important as patent protection in
establishing and maintaining our competitive position. At the same time, we
continue to seek patent protection for our products and processes on a selective
basis. There can be no assurance, however, that any issued patents will provide
substantial protection or commercial value. We require our consultants and
employees to agree in writing to maintain the confidentiality of our information
and, within certain limits, to assign to us any inventions, and any patent or
other intellectual property rights, relating to our business.
COMPETITION. The aperture mask and precision etched metal and electroformed
parts industries are intensely competitive, with no one competitor dominating
the market. We compete principally on the basis of price, product quality and
product availability. We also attempt to build preferred supplier and research
and development arrangements with customers to best meet their current and new
product requirements. In order to remain competitive on pricing, we implemented
substantial cost reduction measures in 1998. There can be no assurance, however,
that these efforts will be successful or that our competitors will not attract
our customer base through new products or processes that are more effective or
less expensive than our products and processes. In addition, there can be no
assurance that customers will not vertically integrate to meet their component
requirements through captive supply.
We are one of only five independent mask manufacturers in the world and the
only independent mask manufacturer with production facilities in the United
States. Our primary mask competitors operate in Japan. In addition, several
color picture tube manufacturers operate captive mask production facilities
and two state directed ventures operate in China. Independent mask
manufacturers supply approximately 85% of the global mask market, with BMC
among the largest at an estimated 16% of the combined television and monitor
mask market share. We supplied approximately 21% of the worldwide demand for
television masks and 6% of the demand for monitor masks in 1998. Many
producers compete in the market for precision photo-etched and electroformed
metal parts. There is no clear market share leader, however, in this
fragmented industry. With respect to etched lead frames, we compete against
established producers mostly located in Asia. Some of the manufacturers also
produce aperture masks. We are working to improve our volume manufacturing
capability and to reduce costs further in order to compete against these lead
frame manufacturers, many of whom have established customer bases and greater
financial resources. There can be no assurance, however, that we will achieve
the manufacturing capabilities and cost reductions necessary to compete in
this market.
SUPPLIES. Each of our PIP operations has available multiple sources of raw
materials needed to manufacture our products. Our Cortland facility imports
all of its steel and invar requirements from Japan and Germany. Our Mullheim
facility obtains a majority of its steel and invar requirements from
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Germany, but obtains a portion of its requirements from Japan. Importation of
steel into the United States is subject to certain restrictions imposed by
U.S. federal trade legislation and regulations, but we have successfully
challenged these restrictions in the past, including obtaining a separate
harmonized tariff classification for the steel used in aperture masks. We do
not anticipate difficulty in obtaining steel or any other raw materials. Our
inability to obtain these materials, however, could have a material adverse
effect on production at certain of our manufacturing locations.
BACKLOG. As of December 31, 1998, the firm backlog of PIP sales orders was $20.0
million, compared with $22.4 million as of December 31, 1997. We expect that all
of the December 31, 1998 backlog orders will be filled within the current fiscal
year.
ENVIRONMENTAL. The chemical etching of metals, which is performed by all PIP
operations, requires the utilization of chemical substances that must be
handled in accordance with federal, state, local and foreign environmental
and safety laws and regulations. The etching processes also generate
wastewater and wastes, some of which are classified as hazardous under
applicable environmental laws and regulations. The wastewater is treated
using on-site wastewater treatment systems. We employ systems for either
disposing of wastes in accordance with applicable laws or regulations or
recycling the chemicals we use through the manufacturing process.
Environmental and other government agencies monitor the wastes and the
wastewater treatment systems to ensure compliance with applicable standards.
Environmental regulations place responsibility for waste on the generator
even after proper disposal. There can be no assurance, therefore, that we
will not incur future liability for waste disposal despite our best efforts
to dispose of all wastes properly. As of March 24, 1999, we were involved in
a total of eight (8) sites where environmental investigations were occurring
and final settlement had not been reached, of which two (2) relate to
discontinued operations, four (4) relate to PIP operations and two (2) relate
to Optical Products operations.
During 1998, we made significant progress toward resolution of a lawsuit
relating to a site in Cortland, New York. In connection with this site, the
Environmental Protection Agency ("EPA") initially identified five potentially
responsible parties ("PRPs") at the site and ordered these PRPs to address the
site. These initial PRPs filed suit in U.S. District Court against BMC and 16
other parties seeking contribution for our alleged share of contamination at the
site. During the third quarter of 1998, we signed a Consent Decree with the EPA
and the other PRPs for remediation of the site. Upon approval from the U.S.
District Court, we anticipate that the Consent Decree will result in the
dismissal of the initial PRP's lawsuit and that we will be relieved of liability
for past PRP costs.
To the extent possible with the amount of information available at this time,
we have evaluated our responsibility for costs and related liability with
respect to the sites at which an investigation is ongoing or threatened, have
recorded accruals for our estimated liability in accordance with generally
accepted accounting principles, and are of the opinion that our liability
with respect to these sites should not have a material adverse effect on our
financial position or the results of our operations. In arriving at this
conclusion, we have considered, among other things, the payments that have
been made with respect to the sites in the past; the factors, such as volume
and relative toxicity, ordinarily applied to allocated defense and remedial
costs at such sites; the probable costs to be paid by the other potentially
responsible parties; total projected remedial costs for a site, if known;
existing technology; and the currently enacted laws and regulations. A
portion of the costs and related liability for certain sites has been or will
be covered by available insurance.
We estimate that PIP incurred approximately $7.2 million in 1998 and $5.8
million in 1997 on expenditures, including capital expenditures, related to
efforts to comply with applicable laws and regulations regulating the discharge
of materials into the environment or otherwise relating to the protection of the
environment. In addition, we estimate that PIP will spend approximately $6.1
million in 1999 and $5.0 million in 2000 on capital expenditures for
environmental control facilities.
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SEASONALITY. Our revenues and earnings from PIP operations are generally lower
in the first and third quarters due to maintenance shutdowns at the Cortland and
Mullheim facilities. The seasonality of end products in this segment,
televisions and computer monitors, also affects our annual earnings pattern.
EMPLOYEES. As of December 31, 1998, PIP had approximately 1,648 employees in the
United States and Europe. The majority of these employees are not represented by
labor unions. Labor relations are considered to be good and there have been no
significant labor disputes in the past ten years.
OPTICAL PRODUCTS
PRODUCTS AND MARKETING. Optical Products, operating under the Vision-Ease
trade name, designs, manufactures and distributes ophthalmic lenses. The
group's headquarters is located in Brooklyn Park, Minnesota. We have lens
manufacturing operations in Azusa, California; Ramsey, Minnesota; St. Cloud,
Minnesota; and Jakarta, Indonesia. We also have 15 lens distribution centers
in the U.S., Canada and England. We manufacture ophthalmic lenses from three
principal materials: polycarbonate, glass and hard-resin plastic. Within each
of these lens materials, we offer single-vision lenses, which have a constant
corrective power at all points; multi-focal lenses, which have two or more
distinct areas of different corrective power; progressive lenses, which are a
type of multi-focal lenses with a continuous gradient of different corrective
power without the line or "jump" generally associated with other multi-focal
lenses; and non-prescription lenses that are used primarily for sunglasses.
We also produce these lenses with anti-reflective and scratch-resistant
coatings to meet increasing demand for value-added products.
We sell semi-finished lenses to independent wholesale optical laboratories or
retail outlets with on-site laboratories, which then finish the lens by grinding
and polishing the inside surface of the lens according to the prescription
provided by the optometrist or ophthalmologist. After processing, the lens is
edged and inserted into a frame by either the wholesale laboratory or a retail
optical dispenser. We sell finished single-vision lenses to wholesale and retail
laboratories. These finished lenses are ready to be edged and inserted into the
frame without laboratory surfacing.
Polycarbonate is the world's fastest growing lens material. Polycarbonate lenses
account for the majority of our lens sales. The polycarbonate lens market in the
United States grew at a rate in excess of 20% in 1998 and in excess of 15% on a
compound basis for the last 15 years. With the acquisition of the Orcolite
division of Monsanto Company in May 1998, we solidified our position as the
leading supplier of polycarbonate lenses. During 1998, we also completed the
move from our former polycarbonate manufacturing operation in Brooklyn Center,
Minnesota to our new $10 million manufacturing facility in Ramsey. We divide
manufacturing responsibility for finished and semi-finished single-vision and
semi-finished multi-focal polycarbonate lenses, including progressives, between
the former Orcolite facility in Azusa and our new Ramsey facility. We also use
the Ramsey facility for centralized distribution and research and development.
We continue to experience diminishing sales of lenses made from glass as the
lens market continues to move toward polycarbonate and hard-resin plastic
lenses. We produce semi-finished glass multi-focal and finished and
semi-finished single-vision lenses at our St. Cloud and Jakarta operations.
During 1998, we completed the move of the Jakarta operations to a new
facility outside Jakarta. This facility is operated through a majority-owned
joint venture and provides a captive supply of low-cost glass lenses.
We manufacture hard-resin plastic lenses in both standard plastic lenses and
high-index plastic lenses. We produce a portion of our hard-resin plastic lens
requirements at our St. Cloud and Azusa facilities. We obtain the remainder of
our hard-resin plastic lens requirements through supply agreements with low cost
manufacturers in Mexico and Southeast Asia. We have commitments to buy
approximately $17.0
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million of lenses from the Southeast Asian manufacturer from January 1999
through June 2000. Under our supply agreement with the Mexican manufacturer,
we supply the equipment and materials needed to produce our ongoing product
requirements. Our Mexican partner supplies the facility and employees. These
sourcing arrangements allow us to focus manufacturing capabilities on
higher-margin products while offering a complete line of lens products at
cost competitive prices.
We invest significant resources in process and product research and
development, particularly in polycarbonate lens development and other higher
margin products. These investments have resulted in the successful
introduction of several new products. In 1996 and 1997, we introduced a broad
line of VersaLite-Registered Trademark- thin and light lenses;
VersaLite-Registered Trademark- SunRx-Registered Trademark-, a premium glare
reducing sun lens; a durable, abrasion-resistant OnGuard-Registered
Trademark- coating; progressive SunRx-Registered Trademark- lenses; and a
premium line of polycarbonate lenses bearing the Tegra-TM- trade name.
Tegra-TM- lenses have an advanced aspheric design, super hard
scratch-resistant coating and other distinctive features. During 1998, we
expanded the Tegra-TM- product line into single-vision products and launched
a new progressive bifocal lens, under the Outlook-TM- trade name, which was
designed specifically for polycarbonate material. This lens was designed to
accommodate a broader range of frame types than any other lens on the market.
After several years of development, we also initiated customer testing of our
new lamination system during the fourth quarter of 1998. This system uses
proprietary technology to produce quality, thin, multi-focal lenses
equivalent to those produced by a laboratory. We intend to offer the
lamination system to retailers and dispensers who want to produce finished
multi-focal polycarbonate lenses on a rapid service and on-site basis. We
also acquired in-process research and development through the Orcolite
acquisition. We intend to continue making significant investments in product
and process design and development for all lens materials.
We market our lenses to more than 750 wholesalers and retailers in the United
States and to more than 60 wholesalers and retailers internationally. No single
customer accounted for more than 10% of our total revenues on a consolidated
basis in 1998, but one customer, Precision LensCrafters, accounted for
approximately 13% of Vision-Ease's total revenues in 1998 and 10% in 1997.
Precision LensCrafters operates retail chain outlets throughout the United
States and is headquartered in Cincinnati, Ohio.
While assimilating the former Orcolite operations into our Vision-Ease
operations, we realigned, and added to, our sales and marketing team. This
sales force is organized according to key accounts and market segments.
Building on Orcolite's international polycarbonate market penetration, we
added resources dedicated solely to international sales and marketing. We
also significantly increased marketing efforts toward our branded products,
as well as resources dedicated to supporting and building relationships at
the dispenser level. We believe that positive relationships with these
professionals are necessary to increase sales of our branded products, such
as Tegra-TM-. We believe these focused efforts will be successful based on
130% growth in SunRx-Registered Trademark- polarized polycarbonate lens sales.
INTELLECTUAL PROPERTY. We have several patents protecting certain of the
products and manufacturing processes of our Vision-Ease operations. These
patents have expiration dates ranging from 1999 to 2015. We believe the loss of
any single patent would not have a material adverse effect on our business as a
whole. We believe that improvement of existing products and processes, the
development of new lens products and a reliance on trade secrets and unpatented
proprietary know-how are as important as patent protection in establishing and
maintaining our competitive position. At the same time, we continue to seek
patent protection for our products and processes on a selective basis. There can
be no assurance, however, that any issued patents will provide substantial
protection or commercial value. We require our consultants and employees to
agree in writing to maintain the confidentiality of our information and, within
certain limits, to assign to us any inventions, and any patent or other
intellectual property rights, relating to our business. We also have several
trademarks, including trademarks obtained through the Orcolite acquisition. As
part of our marketing strategy to build sales of branded products, we have
increased our use of trademarks. Although there are no assurances as to the
strength or scope of our
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trademarks, we believe that these trademarks have been and will be useful in
developing and protecting market recognition for our products.
COMPETITION. The ophthalmic lens industry is highly competitive. We compete
principally on the basis of product offerings, pricing, product quality and
customer service. Vision-Ease is the third largest ophthalmic lens manufacturer
and distributor in the United States, with a substantially smaller share of the
global lens market. Our largest competitors are Essilor International and Sola
International Inc., who have a combined share of approximately 70% of the
ophthalmic lens market in the United States and 50% of the world-wide lens
market. Many of our competitors, particularly Essilor and Sola, have greater
financial resources than Vision-Ease to fund research, development, capital
expenditures. Some competitors also have vertically integrated wholesale
laboratories. In order to successfully compete in this market, we employ a
strategy of combined marketing, product development, customer service and cost
reduction efforts. Through the establishment of low-cost operations and sourcing
arrangements in Southeast Asia and Mexico, we have maintained competitiveness on
low-margin lens products. At the same time, we have increased the breadth of
product offerings, including value-added lenses, to meet the total lens
requirements of our customers. Building upon our leadership position in
polycarbonate lenses, we have dedicated a substantial portion of our process and
product development efforts toward product offerings in this fast growing
market. There can be no assurance, however, that we will succeed in developing
competitive new products, leveraging our polycarbonate strength into growth in
other lens materials and product offerings, maintaining our polycarbonate
leadership position or converting brand equity into increased sales.
SUPPLIES. Vision-Ease has available multiple sources of the raw materials needed
to manufacture all of its products. We obtain the majority of our hard-resin
plastic lenses, however, through sourcing arrangements in Southeast Asia and
Mexico. Although we have limited in-house manufacturing capabilities for
hard-resin plastic lenses, we do not have alternative sources for large volumes
of these lenses. In addition, the importation of raw materials and final
products into and out of these foreign territories is subject to certain trade
restrictions imposed by foreign and United States trade regulations that could
result in the disruption of supply. Although we do not anticipate any disruption
to our supply of hard-resin plastic lenses, our inability to obtain these or
other materials could have a material adverse effect on Vision-Ease's
operations.
BACKLOG AND INVENTORY. Due to the importance in the ophthalmic lens industry of
rapid turnaround time from order to shipment, the backlog of sales orders is not
material. We must maintain a significant amount of inventory, however, in order
to satisfy the rapid response time and complete product offerings across glass,
hard resin plastic and polycarbonate demanded by our customers.
ENVIRONMENTAL. As part of our lens manufacturing process, we use hazardous
chemical substances that must be handled in accordance with applicable federal,
state, local and foreign environmental and safety laws and regulations. The lens
manufacturing processes also generate wastewater and wastes, some of which are
classified as hazardous under applicable environmental laws and regulations. We
employ systems for either disposing of wastes in accordance with applicable laws
and regulations or recycling the chemicals we use through the manufacturing
process. Environmental and other government agencies monitor the wastes and the
wastewater treatment systems to assure compliance with applicable standards.
Environmental regulations place responsibility for waste on the generator even
after proper disposal. There can be no assurance, therefore, that we will not
incur future liability for waste disposal despite our best efforts to dispose of
all wastes properly. As of March 24, 1999, we were involved in a total of eight
(8) sites where environmental investigations were occurring and final settlement
had not been reach, of which two (2) relate to discontinued operations, four (4)
relate to PIP operations and two (2) relate to Optical Products operations.
8
<PAGE>
Included within the sites listed above is an ongoing investigation at our former
Ft. Lauderdale, Florida hard-resin plastic lens manufacturing facility. We are
conducting a soil and groundwater contamination assessment at this site under a
Consent Order with the Florida Department of Environmental Protection ("DEP").
We have submitted several rounds of test results to the DEP. The DEP has
requested additional testing to complete the assessment, but we have been unable
to perform these tests due to restricted access by the property owner. The DEP
recently issued an order to the property owner requiring his cooperation in
granting access for further testing. Although the contamination assessment is
not complete, our consultant has indicated that it is reasonably probable that
some type of remediation or containment will be required and has provided an
approximate cost range for that remediation. Based on the consultant's estimates
and in accordance with generally accepted accounting principles, we have
accrued our best estimate of potential remediation costs. Our investigation
indicates that the source of any contamination predates our ownership and
operation of this facility. We, therefore, intend to seek indemnification for
site costs from the former owner and operator of the site.
To the extent possible with the amount of information available at this time,
we have evaluated our responsibility for costs and related liability with
respect to the sites at which an investigation is ongoing or threatened, have
recorded accruals for our estimated liability in accordance with generally
accepted accounting principles, and are of the opinion that our liability
with respect to these sites should not have a material adverse effect on the
financial position or the results of our operations. In arriving at this
conclusion, we have considered, among other things, the payments that have
been made with respect to the sites in the past; the factors, such as volume
and relative toxicity, ordinarily applied to allocated defense and remedial
costs at such sites; the probable costs to be paid by the other potentially
responsible parties; total projected remedial costs for a site, if known;
existing technology; and the currently enacted laws and regulations. A
portion of the costs and related liability for certain sites has been or will
be covered by available insurance.
We estimate that Vision-Ease incurred approximately $0.4 million in 1998 and
$0.2 million in 1997 on expenditures, including capital expenditures, related to
efforts to comply with applicable laws and regulations regulating the discharge
of materials into the environment or otherwise relating to the protection of the
environment. In addition, we estimate that Vision-Ease will make approximately
$0.4 million in capital expenditures for environmental control facilities during
each of 1999 and 2000.
SEASONALITY. Our Optical Products group experiences generally lower earnings in
the third quarter due to maintenance shutdowns at our lens manufacturing
facilities. Earnings are also lower in the first quarter due to the seasonality
of eyewear, the end product of our lenses.
EMPLOYEES. As of December 31, 1998, Optical Products had approximately 1,493
employees in the United States, Europe and Indonesia. None of these employees
are represented by labor unions. Labor relations are considered to be good.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
Financial information about our foreign and domestic and export sales for the
three most recent fiscal years is contained on page 34 of our annual report to
stockholders for the year ended December 31, 1998, and is incorporated herein by
reference.
FACTORS THAT MAY AFFECT FUTURE RESULTS
NEW PRODUCT DEVELOPMENT. Each of our operations invest significantly in new
product development. Vision-Ease has invested substantial resources toward new
lens offerings in all lens materials: polycarbonate, glass and hard-resin
plastic. These efforts have resulted in many new products that have experienced
success to date, including our Tegra-TM- high-performance polycarbonate
product line and
9
<PAGE>
progressive no-line lenses. We are also testing our new lamination system,
which we expect to launch to retail chains over the course of 1999. Our BMSP
operation continues to focus efforts toward building research and development
relationships with large, high volume end product manufacturers. In addition,
BMSP is continuing efforts to improve lead frame production capabilities and
attempts to gain sales within this market. Finally, Mask Operations continues
to dedicate resources to new product qualifications, particularly for
computer monitor masks. We expect these efforts to facilitate our development
of HDTV and multi-media masks. We must develop these and other new products
and technologies at competitive prices and quality in order to compete in
each of the markets we serve. There are no assurances, however, that we will
succeed in these efforts or that competitors will not develop better quality
and less expense products.
LITIGATION. We are subject to the normal risks of litigation that affect
business operations, including environmental liability for past or present
environmental practices, product liability, workers' compensation and personal
injury. Although we do not anticipate that any existing claims will result in
material liability, there are no assurances that we will not incur such
liability in the future.
START-UP/RAMP-UP OF PRODUCTION LINES. Our expectations for future results are
based on assumptions regarding the financial impact of planned operation of our
Mask Operations production lines and continued improvement in yields and sales
from these lines. During 1998, we shut-down three of these lines at our Cortland
facility due in part to an imbalance of supply and demand. Although we have
restarted two of these lines, we incurred significant start-up and ramp-up
expenses. If we experience further shutdowns at the Cortland facility, or any of
our other production facilities, we will incur lower yields and higher costs,
thereby adversely affecting our financial results.
PRICING AND MARGINS. Many market and economic factors have adversely
affected, and could continue to affect, our financial performance and
projected future results. Since each of our operations supply components to
manufacturers of end products, imbalances in supply and demand at all levels
of product distribution could have, and in some instances have had, a
significant impact on our pricing and margins. Recent expansions by aperture
mask manufacturers helped create this type of imbalance in the mask market,
which resulted in extreme pricing pressures. Margins are affected by the need
to develop new technology. Our ability to meet the market demand for new
products in a timely fashion requires the investment of resources, which,
coupled with intense pricing pressures, decreases our margins. Although we
have taken major steps to reduce our fixed and variable costs in all of our
operations, there can be no assurance that these efforts will be sufficient
to offset further pricing pressures.
SOURCES OF SUPPLY. The primary component of a mask is steel. The primary raw
materials used to manufacture optical products are glass blanks and
polycarbonate and plastic resins. Significant changes in the markets for these
materials, including pricing and availability, could have a material adverse
impact on our financial results. In addition, since Optical Products obtains the
majority of its hard-resin plastic and glass lenses from foreign supply
arrangements and operations, factors affecting these suppliers' ability to meet
our demand for these products could adversely impact our results of operation.
FOREIGN CURRENCY. We transact business in currencies other than U.S. dollars.
The primary currencies used include the German mark, the Euro, Japanese yen,
British pound, Canadian dollar, Hungarian forint and Indonesian rupiah. Our
primary competitors in the mask market are located in Japan. Changes in the
currency exchange rates between the U.S. dollar and the German mark compared to
the Japanese yen affect Mask Operations' pricing competitiveness. Although we
take steps to reduce this risk through cross-currency swaps and other hedging
transactions, we are subject to the risk of adverse fluctuations in currency
exchange rates, which may result, and have resulted, in pricing pressures and
reductions in profitability due to currency conversion or translation.
10
<PAGE>
INTERNATIONAL MARKETS. Mask Operations has a manufacturing facility located in
Mullheim, Germany and an aperture mask inspection facility in Tatabanya,
Hungary. Vision-Ease has supply agreements with hard-resin plastic lens
manufacturers in Southeast Asia and Mexico and a joint venture in Indonesia for
glass lens manufacturing. In addition, we have many international customers and
are dedicating significant resources to increase business with international
customers at all of our operations. Our international operations and sales could
be adversely affected by governmental regulations, political instability,
economic changes or instability and competitive conditions in other countries in
which, and with which, we conduct business. The economic difficulty experienced
in Asia during the past two years is an example of international conditions that
could adversely affect financial performance. Similar downturns in other areas
of the world, such as South America, could affect our operations without advance
warning.
YEAR 2000. We have developed a four-phase approach to identify and remediate our
information technology and non-information technology systems that could be
affected by the technical problems associated with the year 2000. We believe
that these efforts will result in a smooth transition to the year 2000 without
any significant operational problems for our computer systems. In addition, we
are working with third parties, including suppliers, to identify and ensure
their year 2000 readiness. There are no assurances, however, that we or any
third parties will not incur unforeseen difficulties or the failure of systems
in connection with the year 2000 issue. The failure of these systems could have
a material adverse affect on our business.
ITEM 2. PROPERTIES
The following table sets forth certain information regarding our principal
production facilities:
<TABLE>
<CAPTION>
APPROXIMATE SQUARE
LOCATION PRINCIPAL USE FEET OF SPACE
- -------- ------------- -------------
<S> <C> <C> <C>
OWNED:
Ramsey, MN Optical Products 150,000
- Manufacturing of polycarbonate
lenses, centralized distribution and
research and development
St. Cloud, MN Optical Products 94,500
- Manufacturing of glass and hard-
resin plastic lenses
Jakarta, Indonesia Optical Products 66,000
- Manufacturing of glass lenses
Mullheim, Germany Precision Imaged Products 170,000
- Manufacturing of aperture masks and
precision photo-etched metal
products
Cortland, NY Precision Imaged Products 363,000
- Manufacturing of aperture masks
Tatabanya, Hungary Precision Imaged Products 51,000
- Inspection of aperture masks
Leased:
St. Paul, MN Precision Imaged Products 131,000
- Manufacturing of precision photo-
etched metal and electroformed parts
Azusa, CA Optical Products 120,000
- Manufacturing of polycarbonate and
hard-resin plastic lenses and
distribution
</TABLE>
11
<PAGE>
We lease approximately 11,000 square feet in suburban Minneapolis, Minnesota for
our corporate headquarters. We lease approximately 8,000 square feet in Brooklyn
Park, Minnesota for our Vision-Ease headquarters. Our lease in St. Paul expires
in February 2004. We believe our existing facilities are sufficient to meet our
current and foreseeable production and other needs.
In addition to the properties listed above, we operate other smaller domestic
and foreign warehouse, distribution and administrative offices. For additional
information concerning our leased properties, see Note 8 to Notes to
Consolidated Financial Statements on page 27 of our annual report to
stockholders for the year ended December 31, 1998.
ITEM 3. LEGAL PROCEEDINGS
With regard to certain environmental and other legal matters, see Item 1(c)
"Narrative Description of Business - "Precision Imaged Products - Environmental"
and "Optical Products - Environmental" and Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Other than as noted above, there are no material pending or threatened legal,
governmental, administrative or other proceedings to which we are a party or of
which any of our property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by the report.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers, their ages, the year first elected or appointed as an
executive officer and the offices held as of March 24, 1999 are as follows:
<TABLE>
<CAPTION>
DATE FIRST ELECTED
OR APPOINTED AS
NAME (AGE) AN EXECUTIVE OFFICER TITLE
- ---------- -------------------- -----
<S> <C> <C>
Paul B. Burke (43) August 1985 Chairman of the Board, President and
Chief Executive Officer
Jon A. Dobson (32) December 1997 General Counsel and Secretary
William A. Guernsey (47) November 1997 Senior Vice President,
Corporate Development
Jeffrey J. Hattara (42) January 1998 Vice President, Finance and
Administration and Chief Financial
Officer
Steven E. Opdahl (35) May 1998 Corporate Controller
</TABLE>
There are no family relationships between or among any of the executive
officers. Executive officers are elected by the Board of Directors for one-year
terms, commencing with their election at the first meeting of the Board of
Directors immediately following the annual meeting of stockholders and
continuing until the next such meeting of the Board of Directors.
12
<PAGE>
Except as indicated below, the executive officers have not changed their
principal occupations or employment during the past five years.
Mr. Burke is also a director of BMC. Mr. Burke joined BMC as Associated General
Counsel in June 1983, and became Vice President, Secretary and General Counsel
in August 1985. In November 1987, he was appointed Vice President, Ft.
Lauderdale Operations of the Vision-Ease division and in May 1989, he was
appointed President of Vision-Ease. In May 1991, Mr. Burke was elected President
and Chief Operating Officer of BMC, and in July 1991, he became President and
Chief Executive Officer. Mr. Burke was appointed Chairman of the Board in May
1995.
Mr. Dobson joined BMC in April 1995 as Director of Legal Services. In December
1997, he was appointed General Counsel and Secretary. Prior to joining BMC, Mr.
Dobson was an associate with Lindquist & Vennum PLLP, a Minneapolis law firm,
practicing exclusively in corporate and securities law.
Mr. Guernsey joined BMC in July 1992 as President, Mask Operations. He was
appointed Senior Vice President, Corporate Development in November 1997. Prior
to joining BMC, Mr. Guernsey held management positions with several
manufacturing companies, most recently as Vice President and General Manager of
Allis Mineral Systems, a U.S. division of Swedish based Svedala Industries.
Mr. Hattara joined BMC in January 1998 as Vice President, Finance and
Administration and Chief Financial Officer. From September 1978 to January
1998, he served in several management positions at USG Corporation, most
recently as Director of Finance, USG International, Inc.
Mr. Opdahl joined BMC in May 1998 as Corporate Controller. From March 1997 to
March 1998, he served as Vice President, Finance and Chief Financial Officer
of Famous Dave's of America, Inc. From May 1994 to March 1997, Mr. Opdahl
served in a variety of financial management positions with Honeywell, Inc.
From June 1986 to April 1994, Mr. Opdahl worked in several audit and business
advisory positions with Arthur Andersen LLP.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
"Price Range of Common Stock" on page 35 of our annual report to stockholders
for the year ended December 31, 1998 is incorporated herein by reference.
The Company expects to continue its policy of paying regular cash dividends,
although there is no assurance as to future dividends because they are dependent
on future earnings, capital requirements, financial condition and subject to
certain restrictions in the Company's revolving domestic credit facility.
ITEM 6. SELECTED FINANCIAL DATA
"Historical Financial Summary" on page 10 of our annual report to stockholders
for the year ended December 31, 1998 is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis" on Pages 11 - 18 of our annual report to
stockholders for the year ended December 31, 1998 is incorporated herein by
reference.
13
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
"Management's Discussion and Analysis" on pages 15 - 16 of our annual report to
stockholders for the year ended December 31, 1998 is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements and related notes on pages 19 - 34 and the
Report of our Independent Auditors on page 35 of our annual report to
stockholders for the year ended December 31, 1998 are incorporated herein by
reference, as is the unaudited information under the caption "Selected Quarterly
Data" on page 36.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) DIRECTORS OF THE REGISTRANT
The information under the caption "Election of Directors" on pages 2-5
of our proxy statement for the annual meeting of stockholders to be held May 12,
1999 is incorporated herein by reference.
(b) EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning our executive officers is included in this
report under Item 4A, "Executive Officers of the Registrant."
(c) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" on pages 15-16 of our proxy statement for the annual
meeting of stockholders to be held May 12, 1999 is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "Executive Compensation" on pages
6-8 and 10-14, and "Election of Directors--Information About the Board and Its
Committees" on pages 3-4 of our proxy statement for the annual meeting of
stockholders to be held May 12, 1999 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" on pages 5-6 of our proxy statement for the
annual meeting of stockholders to be held May 12, 1999 is incorporated herein by
reference.
14
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Certain Transactions" on page 15 of
our proxy statement for the annual meeting of stockholders to be held May 12,
1999 is incorporated herein by reference.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following items are incorporated herein by reference from
the pages indicated in our annual report to stockholders for
the year ended December 31, 1998.
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS: PAGE
<S> <C>
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996................................................. 19
Consolidated Balance Sheets as of December 31, 1998 and 1997..................... 20
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996........................................... 21
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996................................................. 22
Notes to Consolidated Financial Statements....................................... 23-34
Report of Independent Auditors................................................... 35
Selected Quarterly Financial Data (unaudited).................................... 36
</TABLE>
2. FINANCIAL STATEMENT SCHEDULE:
The following financial statement schedule is included herein
and should be read in conjunction with the consolidated
financial statements referenced above:
<TABLE>
<CAPTION>
PAGE:
<S> <C>
II - Valuation and Qualifying Accounts.......................................... 18
</TABLE>
Schedules other than the one listed above are omitted because
of the absence of the conditions under which they are required
or because the information required is included in the
consolidated financial statements or the notes thereto.
3. EXHIBITS:
Reference is made to the Exhibit Index contained on pages
20-26 of this Form 10-K.
A copy of any of the exhibits listed or referred to herein
will be furnished at a reasonable cost to any person who was a
BMC stockholder as of March 24, 1999, upon receipt from
15
<PAGE>
any such person of a written request for any exhibit. Requests
should be sent to Investor Relations Department, BMC Industries,
Inc., One Meridian Crossings, Suite 850, Minneapolis, MN 55423.
The following is a list of each management contract or
compensatory plan or arrangement required to be filed as an
exhibit to this Form 10-K pursuant to Item 14(c):
a) 1984 Omnibus Stock Program, as amended effective
December 19, 1989 (incorporated by reference to
Exhibit 10.1 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1989 (File No. 1-8467)).
b) 1997 Management Incentive Bonus Plan Summary
(incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended March 31, 1997
(File No. 1-8467)).
c) 1999 Management Incentive Bonus Plan Summary
(filed herewith as Exhibit 10.3).
d) Revised Executive Perquisite/Flex Policy (effective as
of January 1, 1998) (filed herewith as Exhibit 10.4).
e) Restated and Amended Directors' Deferred Compensation
Plan (incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996 (File No. 1-8467)).
f) Form of Change of Control Agreement entered into between
the Company and Messrs. Burke and Wright (incorporated
by reference to Exhibit 10.31 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991
(File No. 1-8467)).
g) Form of Change of Control Agreement entered into between
the Company and Messrs. Dobson, Guernsey, Hattara and
Opdahl (incorporated by reference to Exhibit 10.47 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 (File No. 1-8467)).
h) 1994 Stock Incentive Plan (incorporated by reference to
Exhibit 10.12 to the Company's Annual Report on Form
10-K for the year ended December 31, 1993 (File
No. 1-8467)).
i) Amendment No. 1 to the 1994 Stock Incentive Plan
(incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996 (File No. 1-8467)).
j) Amendment No. 2 to the 1994 Stock Incentive Plan
(incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 (File No. 1-8467)).
k) BMC Stock Option Exercise Loan Program, as amended
June 12, 1998 (incorporated herein by reference to
Exhibit 10.4 of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 (File
No. 1-8467)).
16
<PAGE>
l) Employment Severance Agreement by and between the
Company and Jeffrey J. Hattara, dated January 26, 1998
(incorporated by reference to Exhibit 10.48 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997 (File No. 1-8467)).
m) Employment Agreement by and between the Company and Paul
B. Burke, dated as of January 1, 1999 (filed herewith as
Exhibit 10.25).
n) BMC Industries, Inc. Executive Benefit Plan, effective
January 1, 1993 (filed herewith as Exhibit 10.11).
o) First Declaration of Amendment, effective September 1,
1998, to the BMC Industries, Inc. Executive Benefit Plan
(filed herewith as Exhibit 10.12).
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter
ended December 31, 1998.
(c) EXHIBITS
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) FINANCIAL STATEMENT SCHEDULES
The response to this portion of Item 14 is submitted as a separate
section of this report.
17
<PAGE>
Schedule II Valuation and Qualifying Accounts
Years Ended December 31
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance Charged to Translation Balance
Beginning of Costs and Adjustment and End of
Year Expenses Deductions Other Year
- ------------------------------------------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts $891 $438 $69 $6 $1,266
Allowance for merchandise
returns 1,227 1,856 1,735 10 1,358
- ------------------------------------------------------------------------------------------------------------------
$2,118 $2,294 $1,804 $16 $2,624
- ------------------------------------------------------------------------------------------------------------------
Inventory reserves $7,421 $9,691 $4,494 $173 $12,791
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
1997
- ------------------------------------------------------------------------------------------------------------------
Allowance for doubtful
accounts $1,513 $321 $933 ($10) $891
Allowance for merchandise
returns 817 1,559 1,088 (61) 1,227
- ------------------------------------------------------------------------------------------------------------------
$2,330 $1,880 $2,021 ($71) $2,118
- ------------------------------------------------------------------------------------------------------------------
Inventory reserves $6,949 $1,049 $335 ($242) $7,421
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
1996
- ------------------------------------------------------------------------------------------------------------------
Allowance for doubtful
accounts $1,863 $388 $730 ($8) $1,513
Allowance for merchandise
returns 773 930 857 (29) 817
- ------------------------------------------------------------------------------------------------------------------
$2,636 $1,318 $1,587 ($37) $2,330
- ------------------------------------------------------------------------------------------------------------------
Inventory reserves $3,815 $3,040 $161 $255 $6,949
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on March
31, 1999, on its behalf by the undersigned, thereunto duly authorized.
BMC INDUSTRIES, INC.
By: /s/ Jeffrey J. Hattara
----------------------------------
Jeffrey J. Hattara
Vice President of Finance and
Administration and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 31, 1999, by the following persons on behalf of
the registrant and in the capacities indicated.
Signature Title
/s/ Paul B. Burke
- ------------------------------------ Chairman of the Board, President
Paul B. Burke and Chief Executive Officer
(Principal Executive Officer)
/s/ Jeffrey J. Hattara
- ------------------------------------ Vice President of Finance and
Jeffrey J. Hattara Administration and Chief
Financial Officer (Principal
Financial Officer)
/s/ Steven E. Opdahl
- ------------------------------------ Corporate Controller (Principal
Steven E. Opdahl Accounting Officer)
/s/ Lyle D. Altman
- ------------------------------------ Director
Lyle D. Altman
/s/ John W. Castro
- ------------------------------------ Director
John W. Castro
/s/ H. Ted Davis
- ------------------------------------ Director
H. Ted Davis
/s/ Joe E. Davis
- ------------------------------------ Director
Joe E. Davis
/s/ Harry A. Hammerly
- ------------------------------------ Director
Harry A. Hammerly
/s/ James M. Ramich
- ------------------------------------ Director
James M. Ramich
19
<PAGE>
BMC Industries, Inc.
Exhibit Index to Annual Report on Form 10-K
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Exhibit No. Exhibit Method of Filing
- ----------- ------------------------
<S> <C> <C>
2.1 Asset Purchase Agreement, Incorporated by reference to Exhibit
dated as of March 25, 1998, 2.1 to the Company's Current Report on
between Monsanto Company and Form 8-K dated March 25, 1998 and
VIS-ORC, Inc. filed with the Commission on April 3,
1998 (File No. 1-8467).
2.2 Amendment No. 1 to the Asset Incorporated by reference to the
Purchase Agreement, dated as Company's Current Report on Form 8-K
of May 15, 1998, between dated May 15, 1998 and filed with the
Monsanto Company and Commission on May 29, 1998 (File No.
Vision-Ease Lens Azusa, Inc., 1-8467).
f/k/a VIS-ORC, Inc.
3.1 Second Restated Articles Incorporated by reference to Exhibit
of Incorporation of the 3.1 to the Company's Annual Report on
Company, as amended. Form 10-K for the year ended December
31, 1994 (File No. 1-8467).
3.2 Amendment to the Second Incorporated by reference to Exhibit
Restated Articles of 3.2 to the Company's Annual Report on
Incorporation, dated May 8, Form 10-K for the year ended December
1995. 31, 1994 (File No. 1-8467).
3.3 Amendment to the Second Incorporated by reference to Exhibit
Restated Articles of 3.1 to the Company's quarterly report
Incorporation, dated October on Form 10-Q for the quarter ended
30, 1995. September 30, 1995 (File No. 1-8467).
3.4 Amendment to the Second Filed electronically herewith.
Restated Articles of
Incorporation, dated
August 7, 1998
3.5 Restated Bylaws of the Incorporated by reference to Exhibit
Company, as amended. 3.4 to the Company's Annual Report on
Form 10-K for the year ended December
31, 1994 (File No. 1-8467).
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C>
3.6 Amendment to the Restated Incorporated by reference to Exhibit
Bylaws of the Company. 3.5 to the Company's Annual Report on
Form 10-K for the year ended December
31, 1997 (File No. 1-8467).
3.7 Amendment to the Restated Filed electronically herewith.
Bylaws of the Company, dated
February 20, 1998
4.1 Specimen Form of the Incorporated by reference to Exhibit
Company's Common Stock 4.3 to the Company's Registration
Certificate. Statement on Form S-2 (File No.
2-83809).
4.2 Form of Share Rights Agreement, Incorporated by reference to Exhibit 1
dated as of June 30, 1998, to the Company's Registration Statement
between the Company and Norwest on Form 8-A, dated July 14, 1998.
Bank, National Association, as
Rights Agent.
10.1 1984 Omnibus Stock Program, Incorporated by reference to Exhibit
as amended effective December 10.1 to the Company's Annual Report on
19, 1989. Form 10-K for the year ended December
31, 1989 (File No. 1-8467).
10.2 1997 Management Incentive Incorporated by reference to Exhibit
Bonus Plan Summary. 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended
March 31, 1997 (File No. 1-8467).
10.3 1999 Management Incentive Filed electronically herewith.
Bonus Plan Summary.
10.4 Revised Executive
Perquisite/Flex Policy Filed electronically herewith.
(effective as of January 1,
1998).
10.5 BMC Savings and Profit Filed electronically herewith.
Sharing Plan, restated,
effective September 1, 1998.
</TABLE>
21
<PAGE>
<TABLE>
<S> <C> <C>
10.6 Restated and Amended Incorporated by reference to Exhibit
Directors' Deferred 10.15 to the Company's Annual Report
Compensation Plan. on Form 10-K for the year ended
December 31, 1996 (File No. 1-8467).
10.7 1994 Stock Incentive Plan. Incorporated by reference to Exhibit
10.12 to the Company's Annual Report
on Form 10-K for the year ended
December 31, 1993 (File No. 1-8467).
10.8 First Declaration of Incorporated by reference to Exhibit
Amendment to the BMC 10.3 to the Company's Quarterly Report
Industries, Inc. 1994 Stock on Form 10-Q for the quarter ended
Incentive Plan. June 30, 1996 (File No. 1-8467).
10.9 Second Declaration of Incorporated by reference to Exhibit
Amendment, dated August 8, 10.2 to the Company's Quarterly Report
1997, to the BMC Industries, on Form 10-Q for the quarter ended
Inc. 1994 Stock Incentive September 30, 1997 (File No. 1-8467).
Plan.
10.10 BMC Stock Option Exercise Incorporated by reference to exhibit
Loan Program, as Amended June 10.4 to the Company's Quarterly Report
12, 1998. on Form 10-Q for the quarter ended
June 30, 1998 (File No. 1-8467).
10.11 BMC Industries, Inc. Filed electronically herewith.
Executive Benefit Plan,
effective January 1, 1993.
10.12 First Declaration of Filed electronically herewith.
Amendment to the BMC
Industries Executive Benefit
Plan, effective September 1,
1998.
10.13 Lease Agreement, dated Incorporated by reference to Exhibit
November 20, 1978, between 10.9 to the Company's Registration
Control Data Corporation and Statement on Form S-2 (File No.
the Company. 2-79667).
</TABLE>
22
<PAGE>
<TABLE>
<S> <C> <C>
10.14 Amendment to Lease Agreement, Incorporated by reference to Exhibit
dated December 27, 1983, 10.24 to the Company's Annual Report
between Control Data on Form 10-K for the year ended
Corporation and the Company. December 31, 1983 (File No. 1-8467).
10.15 Amendment to Lease Agreement, Incorporated by reference to Exhibit
dated April 9, 1986, between 10.15 to the Company's Annual Report
Control Data Corporation and on Form 10-K for the year ended
the Company. December 31, 1987 (File No. 1-8467).
10.16 Amendment to Lease Agreement, Incorporated by reference to Exhibit
dated April 12, 1989, between 10.14 to the Company's Annual Report
GMT Corporation (as successor on Form 10-K for the year ended
in interest to Control Data December 31, 1989 (File No. 1-8467).
Corporation) and the Company.
10.17 Amendment to Lease Agreement, Incorporated by reference to Exhibit
dated March 19, 1990, between 10.15 to the Company's Annual Report
GMT Corporation and the on Form 10-K for the year ended
Company. December 31, 1989 (File No. 1-8467).
10.18 Amendment to Lease Agreement, Incorporated by reference to Exhibit
dated May 17, 1993, between 10.20 to the Company's Annual Report
GMT Corporation and the on Form 10-K for the year ended
Company. December 31, 1993 (File No. 1-8467).
10.19 Amendment of Lease, dated Incorporated by reference to Exhibit
April 6, 1994 by and between 10.23 to the Company's Annual Report
GMT Corporation and the on Form 10-K for the year ended
Company. December 31, 1994 (File No. 1-8467).
10.20 Waiver of Condition Incorporated by reference to Exhibit
Precedent, dated July 29, 10.24 to the Company's Annual Report
1994, by and between GMT on Form 10-K for the year ended
Corporation and the Company. December 31, 1994 (File No. 1-8467).
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C>
10.21 Amendment of Lease, dated Incorporated by reference to Exhibit
September 25, 1997 by and 10.34 to the Company's Annual Report
between GMT Corporation and on Form 10-K for the year ended
the Company. December 31, 1997 (File No. 1-8467).
10.22 Form of Change of Control Incorporated by reference to Exhibit
Agreement entered into 10.31 to the Company's Annual Report
between the Company and on Form 10-K for the year ended
Messrs. Burke and December 31, 1991 (File No. 1-8467).
Wright.
10.23 Form of Change of Control Incorporated by reference to Exhibit
Agreement entered into 10.47 to the Company's Annual Report
between the Company and on Form 10-K for the year ended
Messrs. Dobson, Guernsey, December 31, 1997 (File No. 1-8467).
Hattara and Opdahl.
10.24 Employment Severance Incorporated by reference to Exhibit
Agreement by and between the 10.48 to the Company's Annual Report
Company and Jeffrey J. on Form 10-K for the year ended
Hattara, dated January 26, December 31, 1997 (File No. 1-8467).
1998.
10.25 Employment Agreement by and Filed electronically herewith
between the Company and Paul
B. Burke, dated as of
January 1, 1999.
10.26 Commitment letter, dated Incorporated by reference to Exhibit
March 24, 1998, from BT Alex. 10.1 to the Company's Quarterly Report
Brown for an unsecured on Form 10-Q for the quarter ended
revolving credit facility March 30, 1998 (File No. 1-8467).
totaling $275 million.
10.27 Credit Agreement, dated as of Incorporated by reference to Exhibit
May 15, 1998, between the 10.1 to the Company's Quarterly Report
Company, Bankers Trust on Form 10-Q for the quarter ended
Company as Administrative June 30, 1998 (File No. 1-8467).
Agent, NBD Bank as
Documentation Agent and
Various Lending Institutions.
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C>
10.28 Amended and Restated Credit Incorporated by reference to Exhibit
Agreement, dated as of June 10.2 to the Company's Quarterly Report
25, 1998, among the Company, on Form 10-Q for the quarter ended
Several Banks, Bankers Trust June 30, 1998 (File No. 1-8467).
Company as the Agent and a
Lender and NBD Bank as
Documentation Agent and a
Lender.
10.29 Amendment No. 1 to Amended Incorporated by reference to Exhibit
and Restated Credit 10.3 to the Company's Quarterly Report
Agreement, dated as of July on Form 10-Q for the quarter ended
23, 1998, among the Company, June 30, 1998 (File No. 1-8467).
Several Banks, Bankers Trust
Company as Agent and a
Lender, NBD Bank as
Documentation Agent and a
Lender.
10.30 Amendment No. 2 to Amended Filed electronically herewith.
and Restated Credit Agreement,
dated as of December 30, 1998,
among the Company, Several Banks,
Bankers Trust Company as Agent
and a Lender, NBD Bank as
Documentation Agent and a
Lender.
10.31 Product Manufacturing and Incorporated by reference to Exhibit
Sales Agreement, dated 10.36 to the Company's Annual Report
October 17, 1994, between on Form 10-K for the year ended
Polycore Optical, PTE. Ltd. December 31, 1994 (File No. 1-8467).
and Vision-Ease, a unit of
the Company, without exhibits.
10.32 Amendment of the Product Incorporated by reference to Exhibit
Manufacturing and Sales 10.1 to the Company's Quarterly Report
Agreement, dated August 11, on Form 10-Q for the quarter ended
1997, between Polycore September 30, 1997 (File No. 1-8467).
Optical, PTE, Ltd. and
Vision-Ease Lens, Inc.
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C>
10.33 Lease, dated October 29, Incorporated by reference to Exhibit
1997, by and among the 10.3 to the Company's quarterly Report
Company and Meridian on Form 10-Q for the quarter ended
Crossings LLC (d/b/a Told September 30, 1997 (File No. 1-8467).
Development Company).
13.1 Portions of the Company's Filed electronically herewith.
1998 Annual Report to
Stockholders incorporated
herein by reference in this
Annual Report on Form 10-K.
21.1 Subsidiaries of the Filed electronically herewith.
Registrant.
23.1 Consent of Ernst & Young LLP, Filed electronically herewith.
Independent Auditors.
27.1 Financial Data Schedule Filed electronically herewith.
99.1 Press Release, dated December Filed electronically herewith.
11, 1998, announcing
quarterly dividend.
99.2 Press Release, dated February Filed electronically herewith.
1, 1999, announcing fourth
quarter 1998 results.
99.3 Press Release, dated February Filed electronically herewith.
24, 1999, announcing filing of
antidumping petition against
certain aperture masks from
Japan and South Korea.
99.4 Press Release, dated March Filed electronically herewith.
11, 1999 announcing quarterly
dividend.
</TABLE>
26
<PAGE>
RESOLUTIONS
OF THE
BOARD OF DIRECTORS
OF BMC INDUSTRIES, INC.
AUGUST 7, 1998
RESOLVED, that Article IV of the Second Restated Articles of
Incorporation be amended as follows:
"The registered office of the Corporation in Minnesota is One
Meridian Crossings, Suite 850, Minneapolis, MN 55423."
RESOLVED, FURTHER, that the officers of the Company, and each of them,
be, and hereby are, authorized, directed and empowered to take any such act and
do any such thing as may be required to effect such amendment, including,
without limitation, the filing of Articles of Amendment and/or certificates of
change of registered office with the Secretary of State of the State of
Minnesota.
<PAGE>
RESOLUTIONS
OF THE
BOARD OF DIRECTORS
OF
BMC INDUSTRIES, INC.
FEBRUARY 20, 1998
RESOLVED, that the restated Bylaws (the "Bylaws") of BMC Industries,
Inc. (the "Company") are hereby amended by striking out Article II, Section 3,
reading as follows:
" Section 3. SPECIAL MEETINGS. Special meetings of the stockholders may
be called by the chief executive officer, the chief financial officer,
two or more directors or a stockholder or stockholders holding ten
percent or more of the voting power of all shares entitled to vote,
except that a special meeting for the purpose of considering any action
to directly or indirectly facilitate or effect a business combination,
including any action to change or otherwise affect the composition of
the board of directors for that purpose, must be called by 25 percent
or more of the voting power of all shares entitled to vote. Special
meetings shall be held on the date and at the time and place fixed by
the chief executive officer or the Board, or in Hennepin County,
Minnesota at the place fixed by a stockholder or stockholders lawfully
calling a meeting. The business to be transacted at a special meeting
shall be limited to the purposes stated in the notice of the meeting."
And substituting therefore the following:
" Section 3. SPECIAL MEETINGS. Special meetings of the stockholders may
be called by the chief executive officer, the chief financial officer,
two or more directors or a stockholder or stockholders holding ten
percent or more of the voting power of all shares entitled to vote,
except that a special meeting for the purpose of considering any action
to directly or indirectly facilitate or effect a business combination,
including any action to change or otherwise affect the composition of
the Board for that purpose, must be called by 25 percent or more of the
voting power of all shares entitled to vote. A stockholder or
stockholders holding the voting power to lawfully call a meeting, may
demand a special meeting of shareholders by written notice of demand
given to the chief executive officer or chief financial officer and
containing the purpose of the meeting. Within 30 days after receipt of
the demand by one of those officers, the Board shall cause a special
meeting of stockholders to be called and held no later than 90 days
after receipt of the demand, all at the expense of the corporation. If
the Board fails to cause a special meeting to be called and held as
required herein, a stockholder or stockholders making the demand may
call a meeting by giving
<PAGE>
notice as required by Section 302.A.435, Minnesota Statutes, all
at the expense of the corporation.
Special meetings shall be held on the date and at the time and place
fixed by the chief executive officer, the chief financial officer or
the Board, except that a special meeting called by or at the demand of
a stockholder or stockholders hereunder shall be held in the county
where the principal executive office is located."
<PAGE>
Revised 2/10/99
BMC INDUSTRIES, INC.
1999 MANAGEMENT INCENTIVE PLAN
CORPORATE
OBJECTIVE
To focus management attention on annual profit performance and balance
sheet management. To recognize the extraordinary contributions of
individual managers in years when earnings exceed "Par" performance.
GLOSSARY OF TERMS
"CONSOLIDATED NET EARNINGS"
Net earnings per share (Non-Diluted) from continuing
operations as reported in BMC's 1999 Annual Report.
"MAXIMUM PERFORMANCE"
The level of consolidated net earnings justifying a "maximum"
incentive award.
"125% PERFORMANCE"
The level of consolidated net earnings justifying a "125%"
incentive award.
"PAR PERFORMANCE"
The level of consolidated net earnings, as approved by the
Board, justifying a "target" incentive award.
"50% PERFORMANCE"
The level of consolidated net earnings justifying a "50%"
incentive award.
"25% PERFORMANCE"
The level of consolidated net earnings justifying a "25%"
incentive award.
"CUT-IN PERFORMANCE"
The minimum level of consolidated net earnings, defined as 75%
of "Par", justifying a "minimum" incentive award.
"TARGET/PAR INCENTIVE"
The percent (%) of base pay when a "target" incentive award is
earned.
"25% INCENTIVE"
The percent (%) of base pay when a "25%" incentive award is
earned.
"50% INCENTIVE"
The percent (%) of base pay when a "50%" incentive award is
earned.
<PAGE>
"CUT-IN INCENTIVE"
The percent (%) of base pay when a "minimum" incentive award
is earned.
"125% INCENTIVE"
The percent (%) of base pay when a "125%" incentive award is
earned.
"MAXIMUM INCENTIVE"
The percent (%) of base pay when a "maximum" incentive award
is earned.
PARTICIPANTS:
Elected officers and key managers.
1999 PERFORMANCE STANDARDS
1999 CORPORATE PERFORMANCE STANDARDS
"Maximum" performance is 116.7% of the "Par" consolidated net earnings.
"125%" performance is 108.3% of the "Par" consolidated net earnings.
"Par" performance is the consolidated net earnings numbers, as approved
by the Board.
"50%" performance is 91.7% of the "Par" consolidated net earnings.
"25%" performance is 83.3% of the "Par" consolidated net earnings.
"Cut-in" performance is 75% of the "Par" consolidated net earnings.
AWARD LEVELS:
"Target" incentive award levels vary as a percentage of base salary,
depending on the level of responsibility.
ORGANIZATIONAL WEIGHTING:
There is no organizational weighting, i.e., Corporate participants earn
awards based on Corporate performance.
INCENTIVE OPPORTUNITY:
Individual incentive awards will be prorated and calculated based on
the following, once the applicable "Thresholds" have been exceeded:
- The "Maximum" Incentive is earned when reported
earnings, as defined above, equal or exceed "Maximum"
Performance.
<PAGE>
- The "125%" Incentive is earned when reported
earnings, as defined above, equal or exceed "125%"
Performance.
- The "Target" incentive is earned when reported
earnings per share, as defined above, equal or exceed
"Par" Performance.
- The "50%" Incentive is earned when reported earnings,
as defined above, equal or exceed "50%" Performance.
- The "25%" Incentive is earned when reported earnings,
as defined above, equal or exceed "25%" Performance.
- The "Cut-In" Incentive is earned when reported
earnings, as defined above, equal "Cut-In"
Performance.
- No incentive will be paid when reported earnings, as
defined above, fall below "Cut-In" Performance.
PAYMENT FORM:
Cash.
<PAGE>
BMC INDUSTRIES, INC.
1999 MANAGEMENT INCENTIVE PLAN
GENERAL PROVISIONS
1. "Base salary" in the Plan means the cumulative base salary earned, not
paid, by BMC or one of its divisions during the 1999 calendar year,
excluding all other forms of compensation.
2. Incentive compensation payments for 1999 will be made as soon as
practicable after the review and receipt of the audited financial
statements for the year.
3. If a participant becomes ineligible during the year because of a change
in position, the participant will be entitled to incentive compensation
only for the period of time he/she was participating, and then only if
the participant remains in the employ of the Company through the date
the incentive payment is made.
4. Payments will be made only to those participants who are in the
employment of the Company on the date the incentive payment is made,
with the following exceptions:
a) If the participant is a member of a division divested
during 1999 and remains in the employ of the Company
through the closing date of the divestiture, he/she
will be eligible for an incentive award based on
year-to-date performance versus year-to-date
performance standards. The year-to-date proforma
performance will be determined by applying the
percent that the performance standards are of the
approved 1999 budget.
b) If a participant dies during 1999, prorated incentive
compensation will be paid to the participant's
beneficiary, as designated under the Group Life
Insurance Plan, or if a beneficiary is not so
designated, to the duly appointed personal
representative of the participant's estate.
c) If a participant retires with the consent of the
Company during 1999, he/she will be entitled to
receive incentive compensation prorated relative to
the duration of the employee's participation in the
1999 Plan.
d) If a participant has been given a military leave of
absence and is to immediately enter the service of
the armed forces, the participant will be paid an
amount prorated relative to the duration of his/her
participation in the 1999 Plan prior to entering the
service.
e) If a participant for any reason such as illness,
disability, etc., is able to work only part-time, the
Chief Executive Officer may determine the extent to
which such employee shall participate. Each case is
to be handled on the basis of its own merits.
<PAGE>
5. The inclusion of a participant in this Plan does not constitute or
imply a guarantee of continued employment.
6. The inclusion of a participant in this Plan does not constitute a
warranty that he/she will necessarily participate in a future plan, and
the fact that a plan has been established for this year is not to be
construed as an obligation to establish any such plan in the future.
7. A participant whose general job performance is unsatisfactory, or whose
managerial behavior is not in the best interest of the Company, will be
terminated from the Management Incentive Plan, effective upon written
notice with no rights to a prorated award.
8. The obligation of the Company, as set forth herein, shall be subject to
modification in such manner and to such extent as it deems necessary to
comply with any law, regulation or governmental order pertaining to
employee compensation.
<PAGE>
EXECUTIVE PERQUISITE/FLEX POLICY
EFFECTIVE JANUARY 1, 1999
A. EXECUTIVE PERQUISITES
The Company will provide for the direct payment of selected perquisite
expenses that are offered because of competitive compensation practice
and/or because the service is being expensed in the business interests of
the Company.
The following outlines the executive perquisites offered:
- Physical examination every three years under 40 years of age,
every two years over age 40
- Tax preparation fees and financial planning benefit for the Chief
Executive Officer up to $5,000/year
- Tax preparation fees and financial planning benefit for other
Corporate officers and General Managers up to $2,500/year
- Tax gross-up on 25% of the imputed income from the IRS "Annual
Lease Value Table" and IRS defined fuel costs for personal use
or actual expense
- Automobile actual operating expenses
<PAGE>
B. OFFICER FLEX ACCOUNT
The Company will reimburse Corporate officers for the reasonable cost of
certain services. The maximum allowable reimbursement will be up to 10%
of the officers' annual base pay.
Expenses eligible for reimbursement are as follows:
- Athletic, country and business club memberships
- Automobile lease, or, if the automobile is purchased, monthly
reimbursement equivalent to the pro-forma lease cost
<PAGE>
C. INELIGIBLE EXPENSES
The following expenses will no longer be eligible for direct payment or
reimbursement:
- Home security system
- Legal advice
- Tax assistance in excess of $5,000/year for the Chief Executive
Officer and $2500/year for other officers and general managers
- Financial counseling
- Daycare for children
- Season tickets to sporting and cultural events
- First class business travel
- Spouse travel not required by business needs
- Additional personal liability insurance
- Additional business liability insurance
- Education for children
- Additional business travel insurance
- Supplemental life insurance
- Up to $3,000/per calendar year of health care expenses not
covered by Company benefit plans
- Personal computer leases
<PAGE>
BMC INDUSTRIES, INC.
SAVINGS AND PROFIT SHARING PLAN
As restated Effective Generally as of September 1, 1998
<PAGE>
BMC INDUSTRIES, INC.
SAVINGS AND PROFIT SHARING PLAN
Table of Contents
Page
----
Article 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Plan Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Plan Description.. . . . . . . . . . . . . . . . . . . . . . . . 1
1.3. Plan Purposes. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4. Plan Background. . . . . . . . . . . . . . . . . . . . . . . . . 1
Article 2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1. Eligibility Requirements.. . . . . . . . . . . . . . . . . . . . 3
2.2. Transfer Among Participating Employers or Business Units.. . . . 4
2.3. Multiple Employment. . . . . . . . . . . . . . . . . . . . . . . 4
2.4. Reentry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5. Condition of Participation.. . . . . . . . . . . . . . . . . . . 4
2.6. Termination of Participation . . . . . . . . . . . . . . . . . . 4
Article 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1. Before-Tax Contributions.. . . . . . . . . . . . . . . . . . . . 5
3.2. Matching Contributions.. . . . . . . . . . . . . . . . . . . . . 6
3.3. Profit Sharing Contributions.. . . . . . . . . . . . . . . . . . 8
3.4. After-Tax Contributions. . . . . . . . . . . . . . . . . . . . . 9
3.5. Rollovers and Transfers. . . . . . . . . . . . . . . . . . . . . 11
3.6. Corrective Contributions.. . . . . . . . . . . . . . . . . . . . 11
Article 4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1. Establishment of Accounts. . . . . . . . . . . . . . . . . . . . 12
4.2. Valuation and Account Adjustment.. . . . . . . . . . . . . . . . 12
4.3. Allocations Do Not Create Rights.. . . . . . . . . . . . . . . . 13
Article 5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.1. Establishment of Investment Funds. . . . . . . . . . . . . . . . 14
5.2. Contribution Investment Directions.. . . . . . . . . . . . . . . 14
5.3. Transfer Among Investment Funds. . . . . . . . . . . . . . . . . 15
5.4. BMC Common Stock Fund. . . . . . . . . . . . . . . . . . . . . . 15
5.5. Investment Direction Responsibility Resides With Participants. . 16
5.6. Beneficiaries and Alternate Payees . . . . . . . . . . . . . . . 16
Article 6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.1. Hardship Withdrawals from Before-Tax Contribution Account. . . . 17
6.2. Other Withdrawals from Before-Tax Contribution Account . . . . . 18
6.3. Withdrawals from After-Tax Contribution Account. . . . . . . . . 18
6.4. Withdrawals from Rollover Account. . . . . . . . . . . . . . . . 19
i
<PAGE>
6.5. Rules for Withdrawals.. . . . . . . . . . . . . . . . . . . . . 19
6.6. No Withdrawals from Matching Contribution Account, Profit
Sharing Contribution Account or Profit Sharing Plan
Rollover Account . . . . . . . . . . . . . . . . . . . . . . . 19
6.7. Plan Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Article 7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.1. Vesting.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.2. Forfeiture Upon Distribution. . . . . . . . . . . . . . . . . . 25
7.3. Other Forfeitures.. . . . . . . . . . . . . . . . . . . . . . . 25
7.4. Application of Forfeitures. . . . . . . . . . . . . . . . . . . 26
Article 8. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.1. Form and Time of Distribution.. . . . . . . . . . . . . . . . . 27
8.2. Beneficiary Designation.. . . . . . . . . . . . . . . . . . . . 32
8.3. Assignment, Alienation of Benefits. . . . . . . . . . . . . . . 33
8.4. Payment in Event of Incapacity. . . . . . . . . . . . . . . . . 33
8.5. Payment Satisfies Claims. . . . . . . . . . . . . . . . . . . . 33
8.6. Disposition if Distributee Cannot be Located. . . . . . . . . . 33
8.7. Direct Rollovers and Transfers. . . . . . . . . . . . . . . . . 33
Article 9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.1. Before-Tax Contribution Dollar Limitation . . . . . . . . . . . 35
9.2. Actual Deferral Percentage Limitations. . . . . . . . . . . . . 35
9.3. Actual Contribution Percentage Limitations. . . . . . . . . . . 38
9.4. Multiple Use Limitation.. . . . . . . . . . . . . . . . . . . . 40
9.5. Earnings or Losses on Excess Contributions. . . . . . . . . . . 41
9.6. Aggregate Defined Contribution Limitations. . . . . . . . . . . 41
9.7. Aggregate Defined Contribution/Defined Benefit Limitations. . . 43
9.8. Administrator's Discretion. . . . . . . . . . . . . . . . . . . 44
Article 10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.1. Computation Period. . . . . . . . . . . . . . . . . . . . . . . 45
10.2. Vesting Service . . . . . . . . . . . . . . . . . . . . . . . . 45
10.3. Hour of Service.. . . . . . . . . . . . . . . . . . . . . . . . 45
10.4. One-Year Break in Service . . . . . . . . . . . . . . . . . . . 47
10.5. Loss of Service . . . . . . . . . . . . . . . . . . . . . . . . 48
10.6. Pre-Acquisition Service . . . . . . . . . . . . . . . . . . . . 48
Article 11. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.1. Adoption by Affiliated Organizations. . . . . . . . . . . . . . 49
11.2. Authority to Amend and Procedure. . . . . . . . . . . . . . . . 49
11.3. Authority to Terminate and Procedure. . . . . . . . . . . . . . 49
11.4. Vesting Upon Termination, Partial Termination or Discontinuance
of Contributions . . . . . . . . . . . . . . . . . . . . . . . 50
11.5. Distribution Following Termination, Partial Termination or
Discontinuance of Contributions. . . . . . . . . . . . . . . . 50
Article 12. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.1. Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ii
<PAGE>
12.2. Active Participant . . . . . . . . . . . . . . . . . . . . . . 51
12.3. Administrator. . . . . . . . . . . . . . . . . . . . . . . . . 51
12.4. Affiliated Organization. . . . . . . . . . . . . . . . . . . . 51
12.5. After-Tax Contribution Account . . . . . . . . . . . . . . . . 51
12.6. After-Tax Contributions. . . . . . . . . . . . . . . . . . . . 51
12.7. Before-Tax Contribution Account. . . . . . . . . . . . . . . . 51
12.8. Before-Tax Contributions . . . . . . . . . . . . . . . . . . . 51
12.9. Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.10. Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.11. Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.12. Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.13. Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.14. Company Stock. . . . . . . . . . . . . . . . . . . . . . . . . 52
12.15. Consent of Spouse. . . . . . . . . . . . . . . . . . . . . . . 52
12.16. Disabled . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.17. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . 52
12.18. Eligible Earnings. . . . . . . . . . . . . . . . . . . . . . . 52
12.19. Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.20. Excess Eligible Earnings . . . . . . . . . . . . . . . . . . . 53
12.21. Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.22. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 53
12.23. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.24. Highly Compensated Employee. . . . . . . . . . . . . . . . . . 53
12.25. Matching Contribution Account. . . . . . . . . . . . . . . . . 54
12.26. Matching Contributions . . . . . . . . . . . . . . . . . . . . 54
12.27. Normal Retirement Date . . . . . . . . . . . . . . . . . . . . 54
12.28. Number and Gender. . . . . . . . . . . . . . . . . . . . . . . 54
12.29. Participant. . . . . . . . . . . . . . . . . . . . . . . . . . 54
12.30. Participating Business Unit. . . . . . . . . . . . . . . . . . 54
12.31. Participating Employer . . . . . . . . . . . . . . . . . . . . 54
12.32. Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
12.33. Plan Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . 55
12.34. Plan Year. . . . . . . . . . . . . . . . . . . . . . . . . . . 55
12.35. Profit Sharing Contribution Account. . . . . . . . . . . . . . 55
12.36. Profit Sharing Contributions . . . . . . . . . . . . . . . . . 55
12.37. Profit Sharing Plan Rollover Account . . . . . . . . . . . . . 55
12.38. Qualified Employee.. . . . . . . . . . . . . . . . . . . . . . 55
12.39. Rollover Account . . . . . . . . . . . . . . . . . . . . . . . 55
12.40. Section 415 Wages. . . . . . . . . . . . . . . . . . . . . . . 56
12.41. Termination of Employment. . . . . . . . . . . . . . . . . . . 56
12.42. Testing Wages. . . . . . . . . . . . . . . . . . . . . . . . . 57
12.43. Treasury Regulations . . . . . . . . . . . . . . . . . . . . . 57
12.44. Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.45. Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Article 13. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
13.1. Named Fiduciary. . . . . . . . . . . . . . . . . . . . . . . . 58
13.2. Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . 58
13.3. Administrator. . . . . . . . . . . . . . . . . . . . . . . . . 60
iii
<PAGE>
13.4. Compensation and Expenses . . . . . . . . . . . . . . . . . . . 60
13.5. Adoption of Rules . . . . . . . . . . . . . . . . . . . . . . . 60
13.6. Discretion. . . . . . . . . . . . . . . . . . . . . . . . . . . 61
13.7. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 61
13.8. Benefit Claim Procedure . . . . . . . . . . . . . . . . . . . . 61
13.9. Correction of Errors. . . . . . . . . . . . . . . . . . . . . . 61
Article 14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
14.1. Merger, Consolidation, Transfer of Assets . . . . . . . . . . . 63
14.2. Limited Reversion of Fund.. . . . . . . . . . . . . . . . . . . 63
14.3. Top-Heavy Provisions. . . . . . . . . . . . . . . . . . . . . . 63
14.4. No Employment Rights Created. . . . . . . . . . . . . . . . . . 67
14.5. Special Provisions. . . . . . . . . . . . . . . . . . . . . . . 67
14.6. Qualified Military Service. . . . . . . . . . . . . . . . . . . 67
14.7. Short Plan Years. . . . . . . . . . . . . . . . . . . . . . . . 69
iv
<PAGE>
BMC INDUSTRIES, INC.
SAVINGS AND PROFIT SHARING PLAN
ARTICLE
1.
Description and Purpose
1.1. PLAN NAME. The name of the Plan is the "BMC Industries, Inc. Savings and
Profit Sharing Plan."
1.2. PLAN DESCRIPTION. The Plan is a profit sharing plan providing for
Before-Tax Contributions pursuant to a qualified cash or deferred
arrangement, Matching Contributions, Profit Sharing Contributions and
After-Tax Contributions. The Plan is intended to qualify under Code
section 401(a) and to satisfy the requirements of Code sections 401(k)
and 401(m). Notwithstanding the designation of the Plan as a profit
sharing plan, a Participating Employer may make contributions to the Plan
even though it has no current or accumulated earnings or profits.
1.3. PLAN PURPOSES. The purposes of the Plan are to promote effort and
cooperation on the part of Active Participants, to provide a measure of
economic security to each Active Participant by accumulating
contributions for distribution upon retirement, as a supplement to other
resources then available, and to permit Active Participants to share in
the profits and growth of their Participating Employers.
1.4. PLAN BACKGROUND.
(a) The Company adopted the established Plan effective as of April 1,
1979, as an employee thrift and profit sharing plan with after-tax
employee contributions and employer matching contributions made
from current or accumulated profits.
(b) Effective generally as of July 1, 1984, the Plan was restated in
the manner set forth in the 1984 Restatement to provide, among
other things, for the investment of employer matching
contributions in Company Stock.
(c) Effective generally as of July 1, 1985, the Plan was restated in
the manner set forth in the 1985 Revision for purposes of
incorporating into the Plan a cash or deferred arrangement
pursuant to Code section 401(k).
(d) Effective generally as of January 1, 1987, the Plan was restated
in the manner set forth in the 1987 Revision to satisfy the
requirements of the Tax Reform Act of 1986.
(e) Effective generally as of January 1, 1994, the Plan was restated
in the manner set forth in the 1994 Revision to comply with
changes in applicable law and make certain other miscellaneous
changes.
(f) Effective as of the close of business on August 31, 1998, the BMC
Industries, Inc. Profit Sharing Plan was merged into the Plan. To
reflect the merger and changes in applicable law, including the
Small Business Job Protection Act, the Uruguay Round Agreements
Act and the Uniformed Services Employment and Reemployment Rights
Act of 1994,
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and to make other miscellaneous changes to the Plan, the Plan was
restated effective generally as of September 1, 1998 and, in
connection therewith, the name of the Plan was changed to the BMC
Industries, Inc. Savings and Profit Sharing Plan.
2
<PAGE>
ARTICLE
2.
Eligibility
2.1. ELIGIBILITY REQUIREMENTS.
(a) An Employee is eligible to participate in the Plan
(i) for the purposes of having Before-Tax Contributions made on
his or her behalf, making After-Tax Contributions and
having a rollover or transfer made on his or her behalf
pursuant to Section 3.5, on the day on which he or she
first completes an Hour of Service of the type specified at
Section 10.3(a)(i) as a Qualified Employee;
(ii) for the purpose of having Matching Contributions made on
his or her behalf, on the first day of the calendar quarter
that falls on or next follows the last day of the first
Computation Period of the type specified in Section 10.1(a)
during which he or she completes at least 1000 Hours of
Service, if he or she is a Qualified Employee on the date
on which he or she would otherwise be eligible to
participate; and
(iii) for the purpose of having Profit Sharing Contributions made
on his or her behalf, as of the January 1 that falls on or
last precedes the last day of the first Computation Period
of the type specified in Section 10.1(a) during which he or
she completes at least 1000 Hours of Service, if he or she
is a Qualified Employee on the last day of that Computation
Period.
(b) If an Employee who terminates employment before the day on which
he or she would otherwise be eligible to participate in the Plan
pursuant to clause (ii) or (iii) of Subsection (a) again becomes
an Employee after that day:
(i) if he or she terminated employment before completing at
least 1000 Hours of Service during a Computation Period of
the type described in Section 10.1(a), he or she will be
treated as a new Employee and his or her previous service
will be disregarded in determining his or her new
Computation Period pursuant to Section 10.1(a); or
(ii) if he or she terminated employment after completing at
least 1000 Hours of Service during a Computation Period of
the type described in Section 10.1(a), he or she will
become eligible to participate in the Plan for the purposes
specified in clause (ii) and (iii) of Subsection (a) as of
the first following date on which he or she completes an
Hour of Service of the type specified at Section 10.3(a)(i)
as a Qualified Employee.
(c) If an Employee is not a Qualified Employee on the day on which he
or she would otherwise be eligible to participate in the Plan for
a specified purpose, he or she will become eligible to participate
in the Plan for that purpose as of the first following date on
which he or she completes an Hour of Service of the type specified
at Section 10.3(a)(i) as a Qualified Employee.
3
<PAGE>
(d) Notwithstanding Subsection (a), in conjunction with an
acquisition, the Company's Board may specify a special entry date
for those Qualified Employees with respect to whom pre-acquisition
service is taken into account pursuant to Section 10.6.
2.2. TRANSFER AMONG PARTICIPATING EMPLOYERS OR BUSINESS UNITS. A Participant
who transfers from one Participating Employer or Participating Business
Unit to another Participating Employer or Participating Business Unit as
a Qualified Employee will participate in the Plan for the Plan Year
during which the transfer occurs on the basis of his or her separate
Eligible Earnings for the Plan Year from each such Participating Employer
or Participating Business Unit, as the case may be.
2.3. MULTIPLE EMPLOYMENT. A Participant who is simultaneously employed as a
Qualified Employee with more than one Participating Employer or
Participating Business Unit will participate in the Plan as a Qualified
Employee of all such Participating Employers or Participating Business
Units on the basis of his or her separate Eligible Earnings from each
such Participating Employer or Participating Business Unit, as the case
may be.
2.4. REENTRY. An Active Participant who ceases to be a Qualified Employee
will resume active participation in the Plan as of the first following
date on which he or she completes an Hour of Service of the type
specified at Section 10.3(a)(i) as a Qualified Employee.
2.5. CONDITION OF PARTICIPATION. Each Qualified Employee, as a condition of
participation, is bound by all of the terms and conditions of the Plan
and must furnish to the Administrator such pertinent information and
execute such instruments as the Administrator may require.
2.6. TERMINATION OF PARTICIPATION. A Participant will cease to be such as of
the later of the date on which
(a) he or she ceases to be a Qualified Employee or
(b) all benefits, if any, to which he or she is entitled under the
Plan have been distributed.
4
<PAGE>
ARTICLE
3.
Contributions
3.1. BEFORE-TAX CONTRIBUTIONS.
(a) Subject to the limitations described in Article 9, for each Plan
Year an Active Participant's Participating Employer will make
Before-Tax Contributions on behalf of the Participant in the
amount by which the Participant's Eligible Earnings from the
Participating Employer for the Plan Year have been reduced in
accordance with the succeeding provisions of this section.
Before-Tax Contributions will be paid to the Trustee as soon as
administratively practicable after the date on which the Active
Participant would have received the Eligible Earnings but for his
or her election pursuant to this section but in no case later than
the fifteenth business day of the month following the month during
which the Participant would have received the Eligible Earnings
but for his or her election pursuant to this section.
(b) Except as provided in Subsection (c), a Participant's Eligible
Earnings will be reduced in accordance with the following rules -
(i) An Active Participant may elect to reduce his or her
Eligible Earnings by any one percent increment from one
percent to a maximum percentage specified in Plan Rules and
the elected percentage will automatically apply to the
Active Participant's Eligible Earnings as adjusted from
time to time. Plan Rules may specify a lower maximum
percentage for Active Participants who are Highly
Compensated Employees. Neither reductions in Eligible
Earnings nor Before-Tax Contributions will be made on
behalf of a Participant with respect to a period during
which he or she is not an Active Participant.
(ii) Reductions to an Active Participant's Eligible Earnings
will commence as soon as administratively practicable after
the date on which the Administrator or the Administrator's
designate receives a complete and accurate election.
(iii) An Active Participant may change the percentage rate at
which his or her Eligible Earnings will be reduced. The
change will be effective as soon as administratively
practicable after the date on which the Administrator or
the Administrator's designate receives a complete and
accurate election of such change.
(iv) An Active Participant may suspend Eligible Earnings
reductions. The suspension will be effective as soon as
administratively practicable after the date on which the
Administrator or the Administrator's designate receives a
complete and accurate election of such suspension.
Eligible Earnings reductions for an Active Participant who
makes a hardship withdrawal under Section 6.1 will be
automatically suspended for the 12-month period beginning
on the date of the withdrawal distribution.
5
<PAGE>
(v) An Active Participant whose Eligible Earnings reductions
have ceased by reason of automatic or voluntary suspension
may, after the end of the suspension period, resume
Eligible Earnings reductions in accordance with clause
(ii).
(c) Elections pursuant to this section and Eligible Earnings
reductions must be made in accordance with and are subject to Plan
Rules. Only Eligible Earnings payable after an Active
Participant's complete and accurate election has been received and
become effective will be reduced pursuant to the election. If any
election is not processed on a timely basis, or if, for any
reason, an Active Participant's Eligible Earnings are not reduced
in accordance with the Participant's election, no retroactive
adjustments will be made to take into account the effect of any
such delay or failure.
3.2. MATCHING CONTRIBUTIONS.
(a) Subject to Subsection (d) and the limitations described in Article
9, the Participating Employer of an eligible Participant will make
a Matching Contribution on behalf of the Participant for a
calendar quarter in an amount, if any, equal to 25 percent of the
lesser of (i) the Before-Tax Contributions made by the
Participating Employer on the Participant's behalf for the
calendar quarter and (ii) six percent of the Participant's
Eligible Earnings from the Participating Employer for the calendar
quarter. For this purpose, an eligible Participant with respect
to a given calendar quarter is a Participant who
(i) is a Qualified Employee who is either on active status or
paid leave of absence on the last day of the calendar
quarter or
(ii) terminated employment during the calendar quarter
(1) at or after his or her Normal Retirement Date
(2) on account of his or her death
(3) on account of his or her becoming Disabled or
(4) following his or her attainment of age 60 if the sum
of his or her age and years of Vesting Service
equals or exceeds 65;
provided, that this condition will be applied only with
respect to a Participant, such sole application being made
for the calendar quarter during which this clause (ii)
first applies and the condition under clause (i) is not
satisfied.
(b) Subject to Subsection (d) and the limitations described in Article
9, the Participating Employer of an eligible Participant will make
a Matching Contribution on behalf of the Participant for a Plan
Year in an amount, if any, equal to a percentage, determined by
the Participating Employer's Board, of the lesser of (i) the
Before-Tax Contributions made by the Participating Employer on the
Participant's behalf for the Plan Year and (ii) six percent of the
Participant's Eligible Earnings from the Participating Employer
for the Plan Year; provided, that the percentage may be different
for eligible Participants employed in different Participating
Business Units of the Participating Employer based on the annual
profit performance of each Participating Business Unit, as
determined by
6
<PAGE>
the Participating Employer's Board. For this purpose, an eligible
Participant with respect to a given Plan Year is a Participant who
(i) is a Qualified Employee who is either on active status or
paid leave of absence on the last day of the Plan Year or
(ii) terminated employment during the Plan Year
(1) at or after his or her Normal Retirement Date
(2) on account of his or her death
(3) on account of his or her becoming Disabled or
(4) following his or her attainment of age 60 if the sum
of his or her age and years of Vesting Service
equals or exceeds 65;
provided, that this condition will be applied only with
respect to a Participant, such sole application being made
for the calendar quarter during which this clause (ii)
first applies and the condition under clause (i) is not
satisfied.
(c) A Participating Employer's Matching Contributions for a Plan Year
will be paid to the Trustee on such date or dates during or
following such Plan Year as the Participating Employer may elect
but in no case more than 12 months after the end of the Plan Year.
(d) No Matching Contribution will be made with respect to any portion
of a Participant's Before-Tax Contributions returned to the
Participant pursuant to Article 9. For this purpose, Before-Tax
Contributions with respect to which no Matching Contributions are
made for a Plan Year will be deemed to be the first such
contributions returned to the Participant. If the Administrator
determines that Matching Contributions that have been added to a
Participant's Matching Contribution Account should not have been
added by reason of this subsection, the contributions, increased
by Fund earnings or decreased by Fund losses attributable to the
contributions as determined under Section 9.5, will be subtracted
from the Account as soon as administratively practicable after the
determination is made and will be applied to satisfy the
contribution obligations of the Participating Employer that made
the excess contributions for the Plan Year for which the excess
contributions were made. If, because of the passage of time, the
excess cannot be applied in this way, the excess will be
allocated, in the discretion of the Administrator
(i) among the Matching Contribution Accounts of all
Participants who made Before-Tax Contributions for the Plan
Year as Qualified Employees of the Participating Employer
in proportion to such Before-Tax Contributions up to six
percent of Eligible Earnings, or
(ii) as a corrective contribution pursuant to Section 3.6.
7
<PAGE>
3.3. PROFIT SHARING CONTRIBUTIONS.
(a) Subject to the limitations described in Article 9, for each Plan
Year a Participating Employer will make a Profit Sharing
Contribution in an amount equal to the sum of:
(i) three percent of the aggregate Eligible Earnings for the
Plan Year of all Participant's eligible to share in the
contribution for the Plan Year plus
(ii) an additional amount, if any, separately determined by the
Participating Employer's Board for each of its
Participating Business Units based on the annual profit
performance of each Participating Business Unit.
(b) To be eligible to share in a Participating Employer's Profit
Sharing Contribution for a particular Plan Year, a Participant
must have received Eligible Earnings for the Plan Year from the
Participating Employer and either -
(i) completed at least 1000 Hours of Service during the Plan
Year and been employed as a Qualified Employee who is
either on active status or paid leave of absence on the
last day of the Plan Year or
(ii) terminated employment during the Plan Year
(1) at or after his or her Normal Retirement Date
(2) on account of his or her death
(3) on account of his or her becoming Disabled or
(4) following his or her attainment of age 60 if the sum
of his or her age and years of Vesting Service
equals or exceeds 65;
provided, that this condition will be applied only once
with respect to a Participant, such sole application being
made for the Plan Year during which this clause (ii) first
applies and the condition under clause (i) is not
satisfied.
(c) Subject to the limitations described in Article 9, a Participating
Employer's Profit Sharing Contribution for a Plan Year will be
allocated among Participants who have satisfied the eligibility
conditions under Subsection (b) for the Plan Year as follows:
(i) The Participating Employer's contribution described in
Subsection (a)(i) will be allocated to each eligible
Participant in the same proportion that his or her Eligible
Earnings for the Plan Year bears to the aggregate Eligible
Earnings for the Plan Year of all Participants eligible to
share in the Participating Employer's contribution.
(ii) The Participating Employer's contribution described in
Subsection (a)(ii) with respect to a given Participating
Business Unit will be allocated to each eligible
Participant who received Eligible Earnings for the Plan
Year with respect to services for the Participating
Business Unit (other than administrative services with
respect to which he or she is included in the Corporate
Participating
8
<PAGE>
Business Unit unless the contribution relates to the
Corporate Participating Business Unit) as follows:
(1) An amount equal to three percent of his or her
Excess Eligible Earnings for the Plan Year. If,
however, the contribution is less than three percent
of the aggregate Excess Eligible Earnings of all
Participants eligible to share in the contribution
with respect to the Participating Business Unit, the
contribution will be allocated to each such eligible
Participant in the same proportion that his or her
Excess Eligible Earnings for the Plan Year bears to
the aggregate Excess Eligible Earnings for the Plan
Year of all Participants eligible to share in the
contribution with respect to the Participating
Business Unit.
(2) To the extent the contribution is not exhausted
after it has been allocated under clause (1), each
eligible Participant's share of the remainder will
be an amount equal to two and seven-tenths percent
of the sum of his or her Eligible Earnings plus his
or her Excess Eligible Earnings for the Plan Year.
If, however, the contribution is less than two and
seven-tenths percent of the sum of the aggregate
Eligible Earnings plus the aggregate Excess Eligible
Earnings of all Participants eligible to share in
the contribution with respect to the Participating
Business Unit, the contribution will be allocated to
each such eligible Participant in the same
proportion that the sum of his or her Eligible
Earnings plus his or her Excess Eligible Earnings
for the Plan Year bears to the sum of the aggregate
Eligible Earnings plus the aggregate Excess
Eligible Earnings for the Plan Year of all such
eligible Participants.
(3) To the extent the contribution is not exhausted
after it has been allocated pursuant to clauses (1)
and (2), the balance, if any, will be allocated to
each Participant eligible to share in the
contribution with respect to the Participating
Business Unit in the same proportion that his or her
Eligible Earnings for the Plan Year bears to the
aggregate Eligible Earnings for the Plan Year of all
such eligible Participants.
(d) A Participating Employer's Profit Sharing Contribution for a Plan
Year, if any, will be paid to the Trustee on such date or dates
during or following such Plan Year as the Participating Employer
may elect but in no case more than 12 months after the end of the
Plan Year.
3.4. AFTER-TAX CONTRIBUTIONS.
(a) Subject to the limitations described in Article 9, an Active
Participant may make After-Tax Contributions in accordance with
the succeeding provisions of this section. An Active Participant
is not required to make After-Tax Contributions as a condition of
having Before-Tax Contributions, Matching Contributions or Profit
Sharing Contributions made on his or her behalf. After-Tax
Contributions will be paid to the Trustee as soon as
administratively practicable after the date on which the Active
Participant would have received the Eligible Earnings but for his
or her election pursuant to this section but in no case later than
the fifteenth business day of the month following
9
<PAGE>
the month during which the Participant would have received the
Eligible Earnings but for his or her election pursuant to his
section.
(b) Except as provided in Subsection (c), After-Tax Contributions will
be made in accordance with the following rules -
(i) An Active Participant may elect to contribute any one
percent increment of his or her Eligible Earnings from one
percent to a maximum percentage specified in Plan Rules and
the elected percentage will automatically apply to the
Active Participant's Eligible Earnings as adjusted from
time to time. Plan Rules may specify a lower maximum
percentage (which may be zero) for Active Participants who
are Highly Compensated Employees. Neither deductions from
Eligible Earnings nor After-Tax Contributions will be made
on behalf of a Participant with respect to a period during
which he or she is not an Active Participant.
(ii) An Active Participant's After-Tax Contributions will
commence as soon as administratively practicable after the
date on which the Administrator or the Administrator's
designate receives a complete and accurate election.
(iii) An Active Participant may change the percentage rate of his
or her After-Tax Contributions. The change will be
effective as soon as administratively practicable after the
date on which the Administrator or the Administrator's
designate receives a complete and accurate election of such
change.
(iv) An Active Participant may suspend his or her After-Tax
Contributions. The suspension will be effective as soon as
administratively practicable after the date on which the
Administrator or the Administrator's designate receives a
complete and accurate election of such suspension.
After-Tax Contributions by an Active Participant who makes
a hardship withdrawal under Section 6.1 will be
automatically suspended for the 12-month period beginning
on the date of the withdrawal distribution.
(v) An Active Participant whose After-Tax Contributions have
ceased by reason of automatic or voluntary suspension may,
after the end of the suspension period, resume After-Tax
Contributions in accordance with clause (ii).
(c) Elections pursuant to this section and After-Tax Contributions
must be made in accordance with and are subject to Plan Rules.
Only Eligible Earnings payable after an Active Participant's
complete and accurate election has been received and become
effective will be subject to deduction pursuant to the election.
If any election is not processed on a timely basis, or if, for any
reason, an Active Participant's After-Tax Contributions are not
made in accordance with the Participant's election, no retroactive
adjustments will be made to take into account the effect of any
such delay or failure. Plan Rules, however, may permit an Active
Participant to make After-Tax Contributions during any remaining
portion of the Plan Year during which the delay or failure
occurred at more than the otherwise applicable maximum percentage
to adjust for the effect of the delay or failure so long as the
After-Tax Contributions for the Plan Year do not exceed the
applicable maximum percentage or the limitations described in
Article 9.
10
<PAGE>
3.5. ROLLOVERS AND TRANSFERS.
(a) With the prior consent of the Administrator, an Active Participant
may contribute to the Trust, in a direct rollover pursuant to Code
section 401(a)(31) or within 60 days of receipt,
(i) an amount paid or distributed out of an individual
retirement account to which the only contributions have
been one or more eligible rollover distributions, within
the meaning of Code section 402(c)(4), from a plan
qualified under Code section 401(a), or
(ii) an eligible rollover distribution from such a qualified
plan.
(b) With the prior consent of the Administrator, an Active
Participant's accounts under another tax-qualified plan may be
transferred directly to the Trust. Other than in connection with
an acquisition, such a transfer will not be permitted if, as a
result of the transfer, the Plan would be required to provide any
option with respect to the form or time of distribution or any
other benefit, right or feature not available under the Plan prior
to the transfer.
(c) Other than in connection with an acquisition, any contribution or
transfer to the Trust pursuant to this section must be made in
cash and will be added to the Participant's Rollover Account.
3.6. CORRECTIVE CONTRIBUTIONS. For any Plan Year a Participating Employer
may, but is not required to, contribute to the Matching Contribution
Accounts or Profit Sharing Contribution Accounts, or both, of Active
Participants who are not Highly Compensated Employees, or any group of
such Participants identified by the Participating Employer's Board, such
amounts as it deems advisable to assist the Plan in satisfying the
requirements of Section 9.2, 9.3 or 9.4, or any other requirement under
the Code or Treasury Regulations, for the Plan Year. Contributions to
such Participants' Matching Contribution Accounts will be allocated in
proportion to the Before-Tax Contributions made on their behalf for the
Plan Year up to six percent of Eligible Earnings. Contributions to such
Participants' Profit Sharing Contribution Accounts will be allocated in
proportion to their respective Eligible Earnings from the Participating
Employer for the Plan Year. Any amount allocated to a Participant's
Matching Contribution Account or Profit Sharing Contribution Account
pursuant to this section which is used to satisfy the requirements of
Section 9.2, 9.3 or 9.4 will be added to a separate subaccount with
respect to which gains, losses, withdrawals and other credits or charges
are separately allocated on a reasonable and consistent basis pursuant to
Section 4.2.
11
<PAGE>
ARTICLE
4.
Accounts and Valuation
4.1. ESTABLISHMENT OF ACCOUNTS. For each Participant, the following Accounts
will be established and maintained:
(a) A Before-Tax Contribution Account, to which there will be added
any Before-Tax Contributions made on the Participant's behalf;
(b) A Matching Contribution Account, which will include the balance of
his or her employer contribution account under prior provisions of
the Plan and to which there will be added any Matching
Contributions made on the Participant's behalf;
(c) A Profit Sharing Contribution Account, which will include the
balance of his or her profit sharing account under the BMC
Industries, Inc. Profit Sharing Plan and to which there will be
added any Profit Sharing Contributions made on the Participant's
behalf;
(d) An After-Tax Contribution Account, which will include the balance
of his or her supplemental contribution account and employee basic
contribution account under prior provisions of the Plan and to
which there will be added any After-Tax Contributions made by the
Participant; and
(e) A Rollover Account, to which there will be added any rollover or
trust-to-trust transfer made on the Participant's behalf pursuant
to Section 3.5; and
(f) A Profit Sharing Plan Rollover Account which will consist solely
of the balance of his or her rollover account under the BMC
Industries, Inc. Profit Sharing Plan.
One or more additional accounts may be established and maintained for any
Participant or group of similarly situated Participants in connection
with the merger of another plan into the Plan, in which case provisions
of the Plan applicable solely to such accounts will be set forth on an
exhibit to the Plan in accordance with Section 14.5.
4.2. VALUATION AND ACCOUNT ADJUSTMENT. As of the close of business on each
day on which the New York Stock Exchange is open for regular business,
each Participant's Accounts within each investment fund established
pursuant to Section 5.1 will be adjusted, in a manner determined by the
Administrator to be uniform and equitable, for income, expense, gains and
losses of the investment fund, as well as contributions, withdrawals,
loans, loan repayments, satisfaction of unpaid indebtedness in accordance
with Section 6.7(h)(iv), distributions and similar activity, since the
last prior adjustment.
12
<PAGE>
4.3. ALLOCATIONS DO NOT CREATE RIGHTS. The fact that allocations are made and
credited to the Accounts of a Participant does not vest in the
Participant any right, title or interest in or to any portion of the Fund
except at the time or times and upon the terms and conditions expressly
set forth in the Plan. Notwithstanding any allocation or addition to the
Account of any Participant, the issuance of any statement to the
Participant or a Beneficiary of a deceased Participant or the
distribution of all or a portion of any Account balance, the
Administrator may direct the Account to be adjusted to the extent
necessary to correct any error in the Account, whether caused by
misapplication of any provision of the Plan or otherwise, and may recover
from the Participant or Beneficiary the amount of any excess
distribution.
13
<PAGE>
ARTICLE
5.
Participant Investment Direction
5.1. ESTABLISHMENT OF INVESTMENT FUNDS.
(a) In order to allow each Participant to determine the manner in
which his or her Accounts will be invested, the Trustee will
maintain, within the Trust, three or more separate investment
funds of such nature and possessing such characteristics as the
Committee may specify from time to time. Each Participant's
Accounts will be invested in the investment funds in the
proportions directed by the Participant in accordance with the
procedures set forth in Sections 5.2 and 5.3.
(b) In addition to the investment funds maintained pursuant to
Subsection (a), the Trustee will maintain, within the Trust, the
BMC Common Stock Fund which will be invested in shares of Company
Stock except for such amounts of cash as the Trustee determines to
be necessary to satisfy short-term liquidity requirements and cash
held pending acquisition of shares of Company Stock. Shares of
Company stock held in the BMC Common Stock Fund will be voted or,
in connection with a public or private tender or exchange offer,
tendered and sold or exchanged by the Trustee in its discretion.
(c) The Committee may, from time to time, direct the Trustee to
establish additional investment funds or to terminate any existing
investment fund.
(d) Notwithstanding any other provision of the Plan to the contrary,
the Committee may direct the Trustee to suspend Participant
investment activity (including such activity in connection with
the withdrawals, loans and distributions) in any or all investment
funds, or impose special rules or restrictions of uniform
application, for a period determined by the Committee to be
necessary in connection with
(i) the establishment or termination of any investment fund,
(ii) the receipt by the Trustee from, or transfer by the Trustee
to, another trust of account balances pursuant to Section
3.5 or 8.7 in connection with an acquisition or divestiture
or otherwise,
(iii) a change of Trustee or investment manager or
(iv) such other circumstances determined by the Committee as
making such suspension or special rules or restrictions
necessary or appropriate.
5.2. CONTRIBUTION INVESTMENT DIRECTIONS.
(a) Subject to Section 5.4, in conjunction with his or her enrollment
in the Plan, a Participant must direct the manner in which
contributions to his or her Accounts will be invested among the
investment funds maintained pursuant to Section 5.1. Such a
direction must be made in accordance with and is subject to Plan
Rules. To the extent a Participant fails to direct Account
investments, the Accounts will be invested in the manner specified
in Plan Rules.
14
<PAGE>
(b) Subject to Section 5.4, a Participant may direct a change in the
manner in which future contributions credited to his or her
Accounts will be invested among the investment funds maintained
pursuant to Section 5.1. Such a direction must be made in
accordance with and is subject to Plan Rules and will be effective
as soon as administratively practicable after it is received by
the Administrator or the Administrator's designate.
(c) Plan Rules will include procedures pursuant to which Participants
are provided with the opportunity to obtain written confirmation
of investment directions made pursuant to this section.
5.3. TRANSFER AMONG INVESTMENT FUNDS.
(a) Subject to Section 5.4, a Participant may direct the transfer of
his or her Accounts among the investment funds maintained pursuant
to Section 5.1. Such a direction must be made in accordance with
and is subject to Plan Rules and will be effective as soon as
administratively practicable after it is received by the
Administrator or the Administrator's designate.
(b) Plan Rules will include procedures pursuant to which Participants
are provided with the opportunity to obtain written confirmation
of investment directions made pursuant to this section.
(c) Plan Rules may impose uniform limitations and restrictions
applicable to transfers into and out of specific investment funds.
5.4. BMC COMMON STOCK FUND.
(a) Subject to Subsection (b), all amounts credited to a Participant's
Matching Contribution Account will be invested only in the BMC
Common Stock Fund and no amounts credited to any of a
Participant's other Accounts may be invested in the BMC Common
Stock Fund.
(b) Notwithstanding Subsection (a) -
(i) Not more than once each calendar quarter, a Participant who
has attained age 55 may elect to transfer all or any
portion of his or her Matching Contribution Account from
the BMC Common Stock Fund to one or more of the investment
funds maintained pursuant to Section 5.1 other than the BMC
Common Stock Fund. The election must be made in accordance
with and is subject to Plan Rules and will be effective as
soon as administratively practicable after it is received
by the Administrator or the Administrator's designate. All
Matching Contributions credited to the Participant's
Matching Contribution Account after the effective date of
the direction will continue to be invested pursuant to
Subsection (a).
(ii) Not more than once each calendar quarter, a Participant who
is an Employee and is not eligible to make directions
pursuant to Subsection (b)(i) may elect to transfer up to
25 percent of his or her Matching Contribution Account from
the BMC Common Stock Fund to one or more of the investment
funds maintained pursuant to Section 5.1 other than the BMC
Common Stock Fund. A Participant
15
<PAGE>
may only make an election pursuant to this Subsection
(c)(ii) if the portion of the Participant's Matching
Contribution Account invested in the BMC Common Stock Fund
equals or exceeds 20 percent of the balance of the
Participant's Matching Contribution Account. The election
must be made in accordance with and is subject to Plan
Rules and will be effective as soon as administratively
practicable after it is received by the Administrator or
the Administrator's designate. All Matching Contributions
credited to the Participant's Matching Contribution Account
after the effective date of such direction will continue to
be invested pursuant to Subsection (a).
5.5. INVESTMENT DIRECTION RESPONSIBILITY RESIDES WITH PARTICIPANTS. The Plan
is intended to constitute a plan described in section 404(c) of the
Employee Retirement Income Security Act of 1974, as amended.
Accordingly, neither the Administrator, the Trustee nor the Participating
Employers have any authority, discretion, responsibility or liability
with respect to a Participant's selection of the investment funds in
which his or her Accounts will be invested, the entire authority,
discretion and responsibility for, and any results attributable to, the
selection being that of the Participant.
5.6. BENEFICIARIES AND ALTERNATE PAYEES. Solely for purposes of this article,
the term "Participant" includes the Beneficiary of a deceased Participant
and an alternate payee under a qualified domestic relations order within
the meaning of Code section 414(p) unless otherwise provided in such
order, but only after -
(i) the Administrator has determined the identity of the
Beneficiary and the amount of the Account balance to which
he or she is entitled in the case of a Beneficiary of a
deceased Participant, or
(ii) the Administrator has, in accordance with Plan Rules, made
a final determination that the order is a qualified
domestic relations order and all rights to contest such
determination in a court of competent jurisdiction within
the time prescribed by Plan Rules have expired or been
exhausted in the case of an alternate payee.
16
<PAGE>
ARTICLE
6.
Withdrawals During Employment and Loans
6.1. HARDSHIP WITHDRAWALS FROM BEFORE-TAX CONTRIBUTION ACCOUNT.
(a) Subject to the provisions of Section 6.5, a Participant who is an
Employee may make a hardship withdrawal from the portion of his or
her Before-Tax Contribution Account consisting of Before-Tax
Contributions. A hardship withdrawal will be permitted only if
the Administrator determines that the withdrawal is made on
account of an immediate and heavy financial need of the
Participant and is necessary to satisfy such financial need.
(b) A withdrawal will be deemed to be made on account of an immediate
and heavy financial need only if it is determined by the
Administrator to be on account of:
(i) expenses for medical care, described in Code section
213(d), incurred or to be incurred by the Participant, the
Participant's spouse or the Participant's dependent (as
described in Code section 152) that are not otherwise
reimbursable;
(ii) costs directly related to the purchase (excluding mortgage
payments) of a principal residence of the Participant;
(iii) payment of tuition, related educational fees and room and
board expenses for the next 12 months of post-secondary
education for the Participant or his or her spouse, child
or other dependent;
(iv) payments necessary to prevent the eviction of the
Participant from his or her principal residence or
foreclosure on the mortgage on the Participant's principal
residence;
(v) expenses incurred or to be incurred by the Participant that
are directly related to the partial or total destruction of
a principal residence of the Participant through an act of
God that are not otherwise reimbursable;
(vi) expenses incurred or to be incurred by the Participant that
are directly related to and the principal purpose of which
is the legal adoption of a child by the Participant that
are not otherwise reimbursable; or
(vii) loss of income due to layoff of the Participant or his or
her spouse.
(c) A withdrawal will be deemed to be necessary to satisfy the
immediate and heavy financial need of the Participant only if the
Administrator determines that each of the following requirements
is satisfied.
(i) The distribution is not more than the sum of the amount of
the immediate and heavy financial need of the Participant
plus the amount necessary to pay any federal, state or
local taxes or penalties that the Participant will incur in
17
<PAGE>
connection with the distribution, as estimated by the
Administrator in accordance with Plan Rules.
(ii) The Participant has received all withdrawals and has taken
all nontaxable loans available under the Plan and all other
qualified plans maintained by any Affiliated Organization.
(iii) All Before-Tax Contributions and After-Tax Contributions
under the Plan and all elective deferrals and after-tax
employee contributions by or on behalf of the Participant
under any other qualified or nonqualified plan of deferred
compensation maintained by any Affiliated Organization are
suspended for a period of 12 months following the date of
the distribution.
(iv) For the Participant's taxable year following the taxable
year during which he or she received the withdrawal
distribution, the amount of elective deferrals under all
qualified plans maintained by any Affiliated Organization
(including Before-Tax Contributions pursuant to the Plan)
that may be made on the Participant's behalf under Code
section 402(g) is reduced by the amount of such elective
deferrals made on the Participant's behalf for the taxable
year during which he or she received the distribution.
(d) The Administrator's determination of the existence of a
Participant's financial hardship and the amount that may be
withdrawn to satisfy the need created by such hardship will be
made in accordance with Treasury Regulations, and is final and
binding on the Participant. The Administrator may require the
Participant to make representations and certifications concerning
his or her entitlement to a withdrawal pursuant to this section
and is entitled to rely on such representations and certifications
unless the Administrator has actual knowledge to the contrary.
The Administrator is not obligated to supervise or otherwise
verify that amounts withdrawn are applied in the manner specified
in the Participant's withdrawal application.
6.2. OTHER WITHDRAWALS FROM BEFORE-TAX CONTRIBUTION ACCOUNT. Subject to the
provisions of Section 6.5, a Participant who (a) is an Employee, (b) has
attained age 59-1/2 and (c) has received all withdrawals available
pursuant to Sections 6.3 and 6.4, may withdraw all or any part of his or
her Before-Tax Contribution Account balance.
6.3. WITHDRAWALS FROM AFTER-TAX CONTRIBUTION ACCOUNT.
(a) Subject to the provisions of Section 6.5, a Participant who is an
Employee may withdraw all or any part of his or her After-Tax
Contribution Account balance.
(b) A Participant's After-Tax Contribution Account will be treated as
a separate contract under the Plan for purposes of Code section
72(d). Insofar as the Plan permitted Participants to make
in-service withdrawals from their After-Tax Contribution Accounts
on May 5, 1986, notwithstanding Subsection (a), all withdrawals
pursuant to this section will be deemed to be made first from a
Participant's investment in the contract as of December 31, 1986,
to the extent thereof, and then from the separate contract
pursuant to this subsection.
18
<PAGE>
6.4. WITHDRAWALS FROM ROLLOVER ACCOUNT. Subject to the provisions of Section
6.5, a Participant who (a) is an Employee and (b) has received all
withdrawals available pursuant to Section 6.3, may withdraw all or any
part of his or her Rollover Account balance.
6.5. RULES FOR WITHDRAWALS.
(a) Applications for withdrawals must be made in accordance with and
are subject to Plan Rules.
(b) A withdrawal distribution will be made as soon as administratively
practicable after a complete and accurate application form is
received by the Administrator or the Administrator's designate.
(c) A withdrawal distribution will be made on a substantially pro rata
basis from the investment funds in which the Account against which
the distribution is charged is then invested.
(d) All withdrawal distributions will be made in the form of a lump
sum payment by check drawn on the Trust. Withdrawal distributions
will be made as soon as administratively practicable after the
Administrator's determination that a Participant is entitled to
receive the withdrawal distribution and will be based on the
balance of the Participant's Account as of the date on which the
distribution is processed.
(e) A Participant may not withdraw the portion of his or her Accounts
consisting of a note evidencing the unpaid balance of any loan
made pursuant to the Plan.
(f) The provisions of Section 8.7(a) apply to any withdrawal
distribution that constitutes an eligible rollover distribution
within the meaning of Code section 402(c)(4).
6.6. NO WITHDRAWALS FROM MATCHING CONTRIBUTION ACCOUNT, PROFIT SHARING
CONTRIBUTION ACCOUNT OR PROFIT SHARING PLAN ROLLOVER ACCOUNT. Except as
otherwise expressly provided in the Plan, a Participant may not receive a
distribution from his or her Matching Contribution Account, Profit
Sharing Contribution Account or Profit Sharing Plan Rollover Account
while he or she is an Employee.
6.7. PLAN LOANS.
(a) Each Participant or Beneficiary of a deceased Participant who (i)
is an Employee or is otherwise a "party in interest" within the
meaning of the Employee Retirement Income Security Act of 1974, as
amended, and (ii) has received all withdrawals available pursuant
to Section 6.3, may borrow funds from the vested portion of his or
her Before-Tax Contribution Account, Matching Contribution Account
and Rollover Account, by submitting to the Administrator or the
Administrator's designate a complete and accurate loan
application, in accordance with and subject to Plan Rules, subject
however, to the succeeding provisions of this section.
(b) The amount of the loan may not cause the aggregate amount of
outstanding loans to the borrower from the Plan to exceed the
lesser of:
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<PAGE>
(i) $50,000, reduced by the excess (if any) of (1) the highest
outstanding balance of all loans to the borrower from the
Plan and all other qualified plans maintained by any
Affiliated Organization during the 12-month period ending
on the day before the date of the loan over (2) the
outstanding balance of such loans on the date of the loan;
(ii) 50 percent of the aggregate vested balance of the
borrower's Before-Tax Contribution Account, Matching
Contribution Account and Rollover Account as of the date on
which the loan is made.
For purposes of this subsection, the borrower's outstanding loan
balance on a given date will include any loan that is deemed
distributed pursuant to Code section 72(p) and that has not been
repaid to the extent required by Treasury Regulations.
(c) No loan will be made from the portion of a borrower's Matching
Contribution Account invested in the BMC Common Stock Fund. If a
Participant's Matching Contribution Account is not fully vested,
the portion of the Account that is not invested in the BMC Common
Stock Fund will be allocated ratably among the vested and
nonvested portions of the Account.
(d) No individual loan will be made in an amount less than $1000.
(e) No borrower may have more than one loan outstanding at any time.
(f) Each loan will be charged against the vested portion of the
borrower's Accounts in the following order: Rollover Account,
Before-Tax Contribution Account and Matching Contribution Account.
The loan proceeds will be obtained on a substantially pro rata
basis from the investment fund or funds in which the Account
against which the loan is charged is then invested, except that no
proceeds will be obtained from the portion of a borrower's
Matching Contribution Account invested in the BMC Common Stock
Fund.
(g) The annual interest rate on any loan will be the annual prime rate
of interest in effect on the date of the loan as determined by
Norwest Bank Minnesota, N.A., plus one percent.
(h) The borrower must execute a form of promissory note provided by
the Administrator, which:
(i) Creates in the Trust a valid first lien against the
borrower's entire right, title and interest in and to his
or her Accounts (excluding his or her Profit Sharing
Contribution Account and Profit Sharing Plan Rollover
Account) equal to the initial amount borrowed plus accrued
interest thereon;
(ii) Provides for a maturity date not to exceed five years from
the date of the note unless the borrower certifies to the
Administrator that the proceeds of the loan will be applied
to acquire a dwelling unit that will be the borrower's
principal residence or will become his or her principal
residence within a reasonable time after the date of the
loan in which case the maturity date will not exceed ten
years from the date of the note;
20
<PAGE>
(iii) Except as otherwise provided in Plan Rules with respect to
suspension of repayment during leaves of absence, provides
for payments of principal and interest in equal
installments of such frequency, not less frequently than
quarterly, in such minimum amounts and for such maximum
period as Plan Rules prescribe;
(iv) Provides that upon default, as defined in Plan Rules, (1)
the unpaid indebtedness will be accelerated and, unless the
borrower repays the full amount of the outstanding balance
of the loan, satisfied from any distribution then due and
from the vested balance of the borrower's Accounts that
could then be distributed to the borrower or his or her
Beneficiary, with a corresponding reduction in the Account
balance, and (2) the date on which repayment of any
remaining part of such unpaid indebtedness is due will be
extended, until the first date on which the borrower or his
or her Beneficiary could receive a distribution from the
Plan, on which date the unpaid indebtedness will be
satisfied in full and the Account will be reduced by the
amount of the unpaid indebtedness.
(i) In addition to the documents described in Subsection (h), a
borrower must execute an appropriate document under which all
Affiliated Organizations are authorized to deduct from the
borrower's pay the amount of payments due under the terms of any
loan, and must provide such other documents as may from time to
time be required under Plan Rules.
(j) Before making any loan, the Administrator will deliver to the
borrower a clear statement of the charges involved in the proposed
loan transaction. The statement will include the dollar amount of
the loan, the annual rate of the finance charge and the aggregate
amount of the finance charge to the date of maturity.
(k) Each loan will be a loan by the Trust, but for Trust accounting
purposes the loan will be deemed made from the borrower's Account,
and the note executed by the borrower will be deemed to be an
asset of the Account against which the loan is charged. When a
loan is made, the borrower's Account and any investment fund from
which the loan proceeds are obtained will be reduced by an amount
equal to the principal balance of the loan and a Loan Account will
be established for the borrower with an initial balance equal to
the principal amount of the loan. The Loan Account will be
excluded for purposes of determining and allocating the net
earnings (or losses) of the Trust pursuant to Section 4.2. A
borrower's repayments of principal and payments of interest will
be credited to the Accounts from which the loan proceeds were
obtained on a substantially pro rata basis until the amount
borrowed from each such Account has been fully replaced by
principal repayments. The Loan Account will be reduced by the
amount of any principal payment on the loan. Repayments of loan
principal and payments of interest will be invested as soon as
administratively practicable following receipt by the Trustee in
accordance with the borrower's most recent investment directions
with respect to new contributions.
(l) The Administrator will establish a means pursuant to which a
borrower who is an Employee must make loan repayments by payroll
deduction and any other borrower must make loan repayments by
periodic remittals to the Administrator or the Trustee.
21
<PAGE>
(m) The outstanding balance of any loan, including any accrued
interest, may be repaid in its entirety at any time prior to
maturity without penalty. Partial prepayments will not be
permitted.
(n) The Administrator may establish Plan Rules which specify other
terms and conditions as may be necessary or desirable for the
administration of loans under this section.
22
<PAGE>
ARTICLE
7.
Vesting and Forfeitures
7.1. VESTING.
(a) Each Participant always has a fully vested nonforfeitable interest
in his or her Before-Tax Contribution Account, After-Tax
Contribution Account, Rollover Account and Profit Sharing Plan
Rollover Account, in the portion of his or her Matching
Contribution Account attributable to his or her employer
contribution account under prior provisions of the Plan and in the
portion of his or her Matching Contribution Account or Profit
Sharing Contribution Account credited to a subaccount described in
Section 3.6.
(b) A Participant will acquire a fully vested nonforfeitable interest
in the portions of his or her Matching Contribution Account and
Profit Sharing Contribution Account not described in Subsection
(a) upon attaining his or her Normal Retirement Date while he or
she is an Employee or upon becoming a Participant after his or her
Normal Retirement Date.
(c) A Participant will acquire a fully vested nonforfeitable interest
in the portions of his or her Matching Contribution Account and
Profit Sharing Contribution Account not described in Subsection
(a) if he or she dies or becomes Disabled while he or she is an
Employee.
(d) A Participant will acquire a fully vested nonforfeitable interest
in the portion of his or her Profit Sharing Account not described
in Subsection (a) upon the Participant's termination of employment
following the Participant's attainment of age 60 if the sum of his
or her age and full years of Vesting Service is at least 65.
(e) A Participant will acquire a fully vested nonforfeitable interest
in the portions of his or her Matching Contribution Account and
Profit Sharing Contribution Account not described in Subsection
(a) if the Affiliated Organization, Participating Business Unit,
business unit, location or division at which the Participant is
employed, permanently ceases operations or is sold or otherwise
transferred through sale of stock or of business and assets, in
such manner that it no longer is, or is no longer owned by, an
Affiliated Organization.
(f) A Participant will acquire a fully vested nonforfeitable interest
in the portions of his or her Matching Contribution Account and
Profit Sharing Contribution Account not described in Subsection
(a) upon a Change in Control with respect to the Company, which
for purposes of this subsection means any of the following:
(i) The sale, lease, exchange, or other transfer of all or
substantially all of the assets of the Company, in one
transaction or in a series of related transactions, to any
Person;
(ii) The approval by the stock holders of the Company of any
plan or proposal for the liquidation or dissolution of the
Company;
23
<PAGE>
(iii) Any Person is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Securities and Exchange Act of
1934, as amended (the "Exchange Act")), directly or
indirectly, of 50 percent or more of the combined voting
power of the Company's outstanding securities ordinarily
having the right to vote at elections of directors;
(iv) Individuals who constitute the Company's Board of Directors
on January 1, 1998 (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to January
1, 1998 whose election, or nomination for election, by the
Company's stockholders, was approved by a vote of at least
a majority of the directors comprising the Incumbent Board
(either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a
nominee for director, without objection to such nomination)
will, for purposes of this clause (iv), be deemed to be a
member of the Incumbent Board; or
(v) A change in control of a nature that is determined by
independent legal counsel to the Company to be required to
be reported (assuming such event has not been "previously
reported") in response to Item 1(a) of the Current Report
on Form 8-K, as in effect on January 1, 1994, pursuant to
section 13 or 15(d) of the Exchange Act, whether or not the
Company is then subject to such reporting requirement.
For purpose of applying the foregoing, the term "Person" means and
includes any individual, corporation, partnership, group,
association or other "person," as such term is used in section
14(d) of the Exchange Act, other than the Company, a wholly-owned
subsidiary of the Company or any employee benefit plan(s)
sponsored by the Company or a wholly-owned subsidiary of the
Company.
(g) A Participant whose Matching Contribution Account is not otherwise
fully vested will acquire a vested nonforfeitable interest in the
portion of his or her Matching Contribution Account not described
in Subsection (a) to the extent provided in the following
schedule:
<TABLE>
<CAPTION>
Vested
Years of Vesting Service Interest
------------------------ --------
<S> <C>
Less Than One Year 0%
One Year 25%
Two Years 50%
Three Years 75%
Four or More Years 100%
</TABLE>
(h) A Participant whose Profit Sharing Contribution Account is not
otherwise fully vested will acquire a vested nonforfeitable
interest in the portion of his or her Profit Sharing Contribution
Account not described in Subsection (a) to the extent provided in
the following schedule:
24
<PAGE>
<TABLE>
<CAPTION>
Vested
Years of Vesting Service Interest
------------------------ --------
<S> <C>
Less Than Five Years 0%
Five or More Years 100%
</TABLE>
7.2. FORFEITURE UPON DISTRIBUTION.
(a) If a Participant receives a distribution of the entire vested
balance of his or her Accounts after termination of employment and
before he or she incurs five consecutive One-Year Breaks in
Service, the nonvested portions of the Participant's Matching
Contribution Account and Profit Sharing Contribution Account will,
at the time of such distribution, be forfeited. A Participant who
has no vested interest in his or her Matching Contribution Account
and Profit Sharing Contribution Account when he or she terminates
employment will be deemed to have received a distribution of the
entire vested balance of the Accounts at the time of his or her
termination of employment.
(b) If a Participant described in Subsection (a)(i) received a
distribution of less than the entire balance of his or her
Accounts, (ii) resumes employment as a Qualified Employee and
(iii) repays to the Trustee the full amount distributed, other
than the portion of the distribution attributable to his or her
After-Tax Contribution Account, Rollover Account and Profit
Sharing Plan Rollover Account balances, before the earlier of (1)
five years following the date of reemployment as a Qualified
Employee or (2) the date on which he or she incurs five
consecutive One-Year Breaks in Service following the distribution,
then, the amount of any forfeitures will be restored to the
Participant's Matching Contribution Account and Profit Sharing
Contribution, unadjusted for any change in value occurring after
the distribution. Such restoration will be made from forfeitures
that arise for the Plan Year for which such restoration is to be
made. To the extent such forfeitures are insufficient for such
purpose, the Participating Employer with whom the Participant was
last employed as a Qualified Employee will contribute the amount
required to restore the Accounts. A Participant described in the
last sentence of Subsection (a) who is reemployed before incurring
five consecutive One-Year Breaks in Service following the date of
his or her termination of employment will be deemed to have repaid
his or her deemed distribution upon his or her reemployment as a
Qualified Employee.
7.3. OTHER FORFEITURES.
(a) Except as provided in Section 7.2, the nonvested portions of a
Participant's Matching Contribution Account and Profit Sharing
Contribution Account will continue to be held in separate
subaccounts of such Accounts until the Participant incurs five
consecutive One-Year Breaks in Service following his or her
termination of employment, at which time the subaccount balances
will be forfeited. If the Participant resumes employment with an
Affiliated Organization prior to incurring five consecutive
One-Year Breaks in Service, such subaccounts will be disregarded
and their balances will be included in the Matching Contribution
Account balance and Profit Sharing Contribution Account balance.
25
<PAGE>
(b) A Participant's vested interest in his or her Matching
Contribution Account and Profit Sharing Contribution Account
balances following a resumption of employment in accordance with
Subsection (a) at any given time will not be less than the amount
"X" determined by the formula: X = P(AB + (R x D)) - (R x D),
where P is the Participant's vested percentage at the time of
determination; AB is the Account balance at the time of
determination; D is the amount of the distribution; and R is the
ratio of the Account balance at the time of determination, to the
subaccount balance immediately following the distribution.
7.4. APPLICATION OF FORFEITURES. All forfeitures occurring in a Plan Year
will, be applied as follows:
(i) Such forfeitures will first be applied to restore the
Accounts of Participants as provided in Section 7.2(b); and
(ii) Any remaining forfeitures will be applied toward the amount
of future contributions by the Participating Employers.
26
<PAGE>
ARTICLE
8.
Distributions After Termination
8.1. FORM AND TIME OF DISTRIBUTION.
(a) Following a Participant's termination of employment, the Trustee
will distribute to the Participant or, if the Participant has
died, to his or her Beneficiary, the value of the Participant's
vested interest in his or her Accounts. Subject to the remaining
subsections of this section, distributions will be made in
accordance with the following provisions.
(i) If the aggregate vested balance of the Participant's
Accounts is not more than $5000, distribution to the
Participant, or to the Participant's Beneficiary in the
case of the Participant's death, will be made, in the form
of a lump sum payment, as soon as administratively
practicable following the Participant's termination of
employment. This clause will not apply, however, if the
aggregate vested balance of the Participant's Accounts
exceeded $5000 at the time of any previous distribution to
the Participant.
(ii) Except as provided in clause (i), distribution to the
Participant of the vested balance of his or her Before-Tax
Contribution Account, Matching Contribution Account,
After-Tax Contribution Account and Rollover Account will be
made in the form of a lump sum payment or installment
payments as elected by the Participant. The distribution
will be made or will begin, as the case may be, as soon as
administratively practicable after the Participant's
complete and accurate distribution request is received by
the Administrator or the Administrator's designate, but in
no case later than the sixtieth day after the Plan Year
during which the Participant terminates employment or
attains age 65, whichever is later, unless the Participant
elects to defer the distribution pursuant to Subsection
(b). If the Participant has not, prior to the deadline for
making a deferral election pursuant to Subsection (b),
either made an election pursuant to this clause (ii) or
made a deferral election pursuant to Subsection (b), then
distribution to the Participant will be made in the form of
a lump sum payment as soon as administratively practicable
after the deadline for making a deferral election pursuant
to Subsection (b).
(iii) Except as provided in clause (i), distribution to the
Participant of the vested balance of his or her Profit
Sharing Contribution Account and Profit Sharing Plan
Rollover Account will be made in the form provided in
Subsection (c). The distribution will be made or will
begin, as the case may be, as soon as administratively
practicable after the Participant's complete and accurate
distribution request is received by the Administrator or
the Administrator's designate, but in no case later than
the sixtieth day of the Plan Year after the Plan Year
during which the Participant terminates employment or
attains age 65, whichever is later, unless the Participant
elects to defer the distribution pursuant to Subsection
(b). An election pursuant to this clause (iii) does not
have to be made at the same time as an election pursuant to
clause (ii).
27
<PAGE>
(iv) Except as provided in clause (i) and subject to Subsection
(c), distribution to the Participant's Beneficiary
following the Participant's death will be made in the form
and at the time elected by the Beneficiary in accordance
with Subsection (e).
(v) Except as provided in Subsection (c) and Subsection (f),
all distributions will be made in the form of a check drawn
on the Trust, and, if applicable, a canceled note
evidencing any Plan loan; provided, that if the vested
portion of the Matching Contribution Account balance of a
Participant or Beneficiary of a deceased Participant is
credited with the equivalent of at least 10 full shares of
Company Stock, at the election of the Participant or
Beneficiary, distribution of the vested portion of the
Matching Contribution Account balance invested in the BMC
Common Stock Fund may be distributed in full shares of
Company Stock and cash in lieu of any fractional share.
(vi) Any annuity contract distributed pursuant to subsection (c)
or (f) will be a single premium, nonparticipating,
nontransferable, noncancelable, nonsurrenderable immediate
annuity contract that complies with all applicable
requirements of the Plan. Distribution of an annuity
contract satisfies in full any claims that the distributee
or any person claiming on behalf of or through the
distributee may have under the Plan.
(b) Subject to the provisions of the other subsections of this
section, a Participant, other than a Participant whose vested
Account balances are distributed pursuant to Subsection (a)(i),
may elect to defer commencement of his or her distribution under
the Plan by providing the Administrator or the Administrator's
designate a written, signed statement indicating in which of the
available forms the benefit will be paid and specifying the date
on which the payment is to be made or commence; provided that the
specified date may not be later than April 1 of the calendar year
following the calendar year during which the Participant attains
age 70-1/2. The election must be provided to the Administrator
not later than the thirtieth day (or such later date as Plan Rules
may allow) after the Plan Year during which the Participant
terminates employment or attains age 65, whichever is later. Plan
Rules may permit a Participant to modify the election in any
manner determined by the Administrator to be consistent with Code
section 401(a)(14) and corresponding Treasury Regulations and the
other provisions of this section.
(c) If the aggregate vested balance of a Participant's Profit Sharing
Contribution Account and Profit Sharing Plan Rollover Account is
not more than $5000, the vested balance of those Accounts will be
distributed to the Participant in the form of a lump sum payment.
If the aggregate vested balance of a Participant's Profit Sharing
Contribution Account and Profit Sharing Plan Rollover Account is
more than $5000, unless the Participant otherwise elects in
accordance with the provisions of clause (ii), the Administrator
will, with the vested balance of those Accounts, and purchase and
distribute to the Participant an annuity contract that conforms
with the following provisions.
(i) The contract will provide for payments for the life of the
Participant if the Participant is not married on his or her
"annuity starting date," within the meaning of Code section
417(f)(2), or, if the Participant is then married, for
payments for the life of the Participant, with not less
than 50 percent and not
28
<PAGE>
more than 100 percent of the amount of such payments, as
specified by the Participant in the manner prescribed by
the Administrator, continuing after the Participant's death
for the life of such spouse; provided, that
(1) each qualified joint and survivor option payable
under such annuity contract will be actuarially
equivalent to each other option based upon
reasonable actuarial assumptions specified in the
contract; and
(2) if a Participant does not otherwise elect, the
benefit payable under the annuity contract with
respect to a married Participant will be payments
for his or her life with 50 percent of the amount of
such payments continuing thereafter for the life of
such spouse.
(ii) A Participant whose vested Profit Sharing Contribution
Account and Profit Sharing Plan Rollover Account balances
would otherwise be distributed in the form of an annuity
contract pursuant to clause (i) may elect to receive a lump
sum payment or installment payments in lieu of such
contract. The Participant's election must be in writing,
in form prescribed by the Administrator; must be made
within the 90-day period ending on the Participant's
annuity starting date; and may be revoked and a new
election made any number of times during the election
period; and will not be effective unless the Participant's
spouse consents to the election.
(iii) If a Participant dies prior to his or her annuity starting
date and is married on the date of his or her death, as
soon as administratively practicable after the
Administrator receives a properly completed distribution
request form from the Participant's surviving spouse but in
no case later than the date on which the Participant would
have attained age 70-1/2, the Administrator will, with the
vested balance of the Participant's Profit Sharing
Contribution Account and Profit Sharing Plan Rollover
Account, purchase and distribute to the Participant's
surviving spouse an annuity contract that provides payments
to the surviving spouse for his or her life; provided, that
this clause (iii) will not apply if -
(1) the Participant's spouse elects, in the manner
prescribed by the Administrator and prior to the
purchase of the annuity contract, to receive the
balance of the Participant's Profit Sharing
Contribution Account and Profit Sharing Plan
Rollover Account in a lump sum payment or
installment payments in accordance with the
provisions of Subsection (e), or
(2) the Participant elected, in the manner prescribed by
the Administrator and within the period commencing
on the first day of the Plan Year in which he or she
attained age 35 and ending on the date of his or her
death, to waive the provisions of this clause (iii),
and the Participant's spouse consented to such
election; provided that a Participant may, at any
time and any number of times, by signed written
notice delivered to the Administrator during the
Participant's lifetime, revoke any election made
under this clause, and may, with the consent of his
or her spouse, make a new election following any
such revocation.
29
<PAGE>
(iv) The provisions of this Subsection (c) apply notwithstanding
and supersede any designation by a married Participant of
any primary Beneficiary other than his or her spouse which
designation is not made either in conjunction with an
election pursuant to clause (ii) or (iii) of this
Subsection (c), as the case may be, or thereafter with the
spouse's consent.
(d) If a Participant elects to receive his or her distribution in the
form of installment payments pursuant to Subsection (a)(ii) or
Subsection (c)(iii), the installments will be substantially equal
in amount and will be made on a monthly, quarterly, semi-annual or
annual basis, for a period not extending beyond either the
Participant's life expectancy or the life expectancy of the
Participant and his or her Beneficiary; and, if the Participant's
Beneficiary is not his or her spouse, the period over which such
payments are to be made must comply with Treasury Regulation
section 1.401(a)(9)-2. Prior to the Participant's "required
beginning date," within the meaning of Code section 401(a)(9), the
Participant may elect, in accordance with and subject to Plan
Rules, whether the life expectancies for the Participant and his
or her spouse are to be recalculated on an annual basis for
purposes of determining the amount of each installment payment.
Any such election will become irrevocable as of the required
beginning date. If no such election is made, the life
expectancies of the Participant and his or her spouse will not be
recalculated. Installment payments will be made on a
substantially pro rata basis from the investment funds in which
the Participant's Accounts are then invested.
(e) Subject to Subsections (a)(i) and (c)(iii), if a Participant dies
before receiving the full amount to which he or she is entitled,
the amount remaining will be distributed to the Participant's
Beneficiary at such time or times and in such manner as the
Beneficiary elects on a form provided by the Administrator,
subject, however, to the following rules:
(i) If the Participant dies after the April 1 of the calendar
year following the calendar year during which he or she has
both attained age 70-1/2 and terminated employment,
distribution will be made to the Beneficiary at a rate that
would result in the benefit being distributed at least as
rapidly as if distribution were made at the same rate as
was in effect immediately prior to the Participant's death.
(ii) If the Participant dies before April 1 of the calendar year
following the calendar year during which he or she has both
attained age 70-1/2 and terminated employment, distribution
will, at the Beneficiary's election, be made either -
(1) in a lump sum payment no later than December 31 of
the calendar year which contains the fifth
anniversary of the date of the Participant's death,
or
(2) in installment payments commencing no later than
December 31 of the calendar year immediately
following the calendar year in which the Participant
died (unless the Beneficiary is the Participant's
spouse, in which case payments must begin no later
than such date specified above or December 31 of the
calendar year in which the Participant would have
attained age 70-1/2 if he or she had lived).
30
<PAGE>
If a Beneficiary elects to receive his or her distribution
in the form of installment payments, the payments will be
substantially equal in amount and will be made on a
monthly, quarterly, semi-annual or annual basis, as elected
by the Beneficiary, for a period, elected by the
Beneficiary in accordance with and subject to Plan Rules,
which may not be longer than the Beneficiary's life
expectancy (as determined on the basis of the Beneficiary's
age as of the date on which the payments are required to
commence and, if the Beneficiary is the Participant's
surviving spouse, as redetermined on an annual basis if
elected by the Beneficiary in accordance with and subject
to Plan Rules).
(iii) For purposes of applying clauses (i) and (ii), if the
Participant is a "5-percent owner" within the meaning of
Code section 416, then he or she will be deemed to have
terminated employment upon attaining age 70-1/2.
(iv) If the Participant's spouse is the Beneficiary and dies
after the Participant's death but before distributions to
the spouse have commenced, the foregoing rules will be
applied as if the surviving spouse were the Participant,
including the substitution of the surviving spouse's date
of death for the Participant's date of death; provided,
that the alternative commencement date in clause (ii)(2)
(relating to the date on which the Participant would have
attained age 70-1/2 had he or she lived) will not be
available.
(f) In lieu of making installment payments to a Participant or
Beneficiary directly from the Trust, the Administrator may use the
vested balance of the Participant's or Beneficiary's Accounts to
purchase an annuity contract from an insurance company and
distribute the contract to the Participant or Beneficiary.
(g) Notwithstanding Subsection (a), distribution to any Participant
who attains age 70-1/2 before January 1, 1999, and distribution to
any Participant who is a "5-percent owner," within the meaning of
the Code section 416, must begin not later than April 1 of the
calendar year after the Participant attains age 70-1/2, whether or
not the Participant has terminated employment, as if he or she had
terminated employment on the last day of the Plan Year during
which he or she attained age 70-1/2. A Participant who attained
age 70-1/2 before January 1, 1999, is not a 5-percent owner and is
an Employee on September 1, 1998 may elect to stop distributions
or to defer commencement of distributions, as the case may be.
The election must be made in accordance with and is subject to
Plan Rules, must be received by the Administrator not later than a
date specified in Plan Rules, and will become effective as soon as
administratively practicable after it is received by the
Administrator. The election is irrevocable after it is received
by the Administrator. If distributions to a Participant are
stopped pursuant to this subsection, the Participant will have a
new annuity starting date and his or her benefit will recommence
in accordance with the other subsections of this Section 8.1
following his or her subsequent termination of employment.
(h) Notwithstanding any other provision of the Plan to the contrary,
distributions (including payments pursuant to any annuity contract
distributed pursuant to this section) will be made in accordance
with regulations issued under Code section 401(a)(9), including
Treasury Regulation section 401(a)(9)-2, and any provisions of the
Plan reflecting Code
31
<PAGE>
section 401(a)(9) take precedence over any distribution options in
the Plan that are inconsistent with Code section 401(a)(9).
8.2. BENEFICIARY DESIGNATION.
(a) Subject to Section 8.1(c)(iv), each Participant may designate, on
a form provided by the Administrator, one or more primary
Beneficiaries or alternative Beneficiaries for all or a specified
fractional part of his or her aggregate Accounts and may change or
revoke any such designation from time to time. No such
designation, change or revocation is effective unless executed by
the Participant and received by the Administrator during the
Participant's lifetime. Subject to Subsection (d), no such change
or revocation requires the consent of any person.
(b) If a Participant
(i) fails to designate a Beneficiary, or
(ii) revokes a Beneficiary designation without naming another
Beneficiary, or
(iii) designates one or more Beneficiaries none of whom survives
the Participant,
for all or any portion of the Accounts, such Accounts or
portion are payable to the first class of the following
classes of automatic Beneficiaries that includes a member
surviving the Participant:
Participant's spouse;
Participant's issue, per stirpes and not per capita;
Representative of Participant's estate.
(c) When used in this section and, unless the designation otherwise
specifies, when used in a Beneficiary designation, the term "per
stirpes" means in equal shares among living children and the issue
(taken collectively) of each deceased child, with such issue
taking by right of representation; "children" means issue of the
first generation; and "issue" means all persons who are descended
from the person referred to, either by legitimate birth or legal
adoption. The automatic Beneficiaries specified above and, unless
the designation otherwise specifies, the Beneficiaries designated
by the Participant, become fixed as of the Participant's death so
that, if a Beneficiary survives the Participant but dies before
the receipt of all payments due such Beneficiary, any remaining
payments are payable to the representative of such Beneficiary's
estate. Any designation of a Beneficiary by name that is
accompanied by a description of relationship or only by statement
of relationship to the Participant is effective only to designate
the person or persons standing in such relationship to the
Participant at the Participant's death.
(d) Notwithstanding Subsection (a), no designation of a Beneficiary
other than the Participant's spouse is effective unless such
spouse consents to the designation. Any such consent is effective
only with respect to the Beneficiary or class of Beneficiaries so
designated and only with respect to the spouse who so consented.
32
<PAGE>
8.3. ASSIGNMENT, ALIENATION OF BENEFITS.
(a) Except as required under a qualified domestic relations order or
by the terms of any loan from the Trust or to comply with a
federal tax levy pursuant to Code section 6331, and except as
otherwise provided in Code section 401(a)(13)(C), (i) no benefit
under the Plan may in any manner be anticipated, alienated, sold,
transferred, assigned, pledged, encumbered or charged, and any
attempt to do so is void and (ii) no benefit under the Plan is in
any manner liable for or subject to the debts, contracts,
liabilities, engagements or torts of the person entitled to such
benefit.
(b) To the extent provided in a qualified domestic relations order,
distribution of benefits assigned to an alternate payee by such
order may be distributed to the alternate payee in the form of a
lump sum payment prior to the Participant's earliest retirement
age. The terms "qualified domestic relations order," "alternate
payee" and "earliest retirement age" have the meanings given in
Code section 414(p).
8.4. PAYMENT IN EVENT OF INCAPACITY. If any person entitled to receive any
payment under the Plan is physically, mentally or legally incapable of
receiving or acknowledging receipt of the payment, and no legal
representative has been appointed for such person, the Administrator in
his or her discretion may (but is not required to) cause any sum
otherwise payable to such person to be paid to any one or more of the
following as may be chosen by the Administrator: the Beneficiaries, if
any, designated by such person; the institution maintaining such person;
a custodian for such person under the Uniform Transfers to Minors Act of
any state; or such person's spouse, children, parents or other relatives
by blood or marriage. Any such payment completely discharges all
liability under the Plan to the person with respect to whom the payment
is made to the extent of the payment.
8.5. PAYMENT SATISFIES CLAIMS. Any payment to or for the benefit of any
Participant, or Beneficiary in accordance with the provisions of the
Plan, to the extent of such payment, fully satisfies of all claims
against the Trustee, the Administrator and the Participating Employers,
any of whom may require the payee to execute a receipted release as a
condition precedent to such payment.
8.6. DISPOSITION IF DISTRIBUTEE CANNOT BE LOCATED. If the Administrator is
unable to locate a Participant or Beneficiary to whom a distribution is
due, the Participant's Accounts will continue to be held in the Fund
until such time as the Administrator has located the Participant or
Beneficiary or the Participant or Beneficiary makes a proper claim for
the benefit, as the case may be; provided, that, any Accounts not claimed
within the period prescribed by applicable escheat laws will be paid to
such governmental authorities, in such manner, as is specified in such
laws.
8.7. DIRECT ROLLOVERS AND TRANSFERS.
(a) To the extent a distribution is an "eligible rollover
distribution," within the meaning of Code section 402(c)(4), the
Administrator will, if so instructed by the distributee in
accordance with Plan Rules, direct the Trustee to make the
distribution to an "eligible retirement plan," within the meaning
of Code section 402(c)(8). The foregoing provision will not apply
(i) if the aggregate taxable distributions to be made to the
distributee during the calendar year are less than $200, (ii) if
less than the entire taxable amount of the distribution is to be
distributed to the eligible retirement plan and the
33
<PAGE>
amount to be distributed to the eligible retirement plan is less
than $500 or (iii) with respect to any portion of an eligible
rollover distribution that consists of an offset amount with
respect to a Plan loan.
(b) The Administrator may direct the Trustee to transfer the balance
of any or all of the Accounts of a Participant to the trustee of
another plan; provided, that
(i) the other plan is a defined contribution plan qualified
under Code section 401(a),
(ii) the other plan satisfies the requirements set forth in Code
sections 401(k) and 411(d)(6) with respect to the
transferred Accounts to which such requirements are
applicable, and
(iii) the trustee of the other plan is willing to accept such
transfer.
34
<PAGE>
ARTICLE
9.
Contribution Limitations
9.1. BEFORE-TAX CONTRIBUTION DOLLAR LIMITATION. The aggregate amount of
Before-Tax Contributions and other "elective deferrals" (within the
meaning of Code section 402(g)(3)) under any other qualified plan
maintained by an Affiliated Organization with respect to a Participant
for any taxable year of the Participant may not exceed $7000 (or such
larger amount as may be permitted for the taxable year under Code section
402(g)). The limitation for any Participant who received a hardship
distribution under Section 6.1 will, for the year following the year in
which such distribution was made, be reduced as provided in Section
6.1(c)(iv). If the limitation is exceeded for any taxable year of the
Participant, the Participant will be deemed to have notified the
Administrator of such excess and the amount of Before-Tax Contributions
in excess of the limitation, increased by Fund earnings or decreased by
Fund losses attributable to the excess as determined under Section 9.5,
will be distributed to the Participant. Such distribution may be made at
any time after the excess contributions are received, but not later than
April 15 of the taxable year following the taxable year to which the
limitation relates. The amount distributed to a Participant who has made
elective deferrals for the taxable year other than pursuant to Section
3.1 will, to the extent of such other elective deferrals, be determined
in accordance with written allocation instructions received by the
Administrator from the Participant not later than March 1 of the taxable
year following the taxable year with respect to which the Before-Tax
Contributions were made.
9.2. ACTUAL DEFERRAL PERCENTAGE LIMITATIONS.
(a) Notwithstanding Section 3.1, for any Plan Year beginning after
December 31, 1996, Before-Tax Contributions may be made on behalf
of Participants who are Highly Compensated Employees only if the
requirements of Code section 401(k)(3), as set forth in Subsection
(b), are satisfied. To the extent deemed necessary by the
Administrator in order to comply with such requirements, the
Administrator may, in accordance with the Plan Rules,
prospectively decrease the rate at which a Participant's Eligible
Earnings will be reduced.
(b)
(i) The requirements of Code section 401(k)(3) will be
satisfied for any Plan Year if, for that Plan Year, the
Plan satisfies the requirements of Code section 410(b)(1)
with respect to "eligible employees" and either of the
following tests:
(1) the "actual deferral percentage" for the Plan Year
for eligible employees who are Highly Compensated
Employees for the Plan Year is not more than the
product of the actual deferral percentage for the
preceding Plan Year for all eligible employees for
the preceding Plan Year who were not Highly
Compensated Employees (subject to any adjustment
required by Treasury Regulations to reflect Plan
coverage changes during the Plan Year being tested),
multiplied by one and one-quarter; or
(2) the excess of the actual deferral percentage for the
Plan Year for eligible employees who are Highly
Compensated Employees for the Plan Year
35
<PAGE>
over the actual deferral percentage for the
preceding Plan Year for all eligible employees for
the preceding Plan Year who were not Highly
Compensated Employees is not more than two
percentage points and the actual deferral percentage
for the Plan Year for eligible employees who are
Highly Compensated Employees for the Plan Year is
not more than the product of the actual deferral
percentage for the preceding Plan Year of all
eligible employees for the preceding Plan Year who
were not Highly Compensated Employees, multiplied by
two.
(ii) For purposes of this section and Section 9.4,
(1) "eligible employee" means an Active Participant who
is eligible to have Before-Tax Contributions made on
his or her behalf for the Plan Year in question or
would be so eligible but for a suspension imposed
under Section 3.1(b)(iv); and
(2) "actual deferral percentage," with respect to either
of the two groups of eligible employees referenced
above, is the average of the ratios, calculated
separately for each eligible employee in the
particular group, of the amount of Before-Tax
Contributions made on the eligible employee's behalf
for the Plan Year in question, to the eligible
employee's Testing Wages for the Plan Year in
question, or the portion of such Plan Year during
which he or she was an eligible employee, as
specified in Plan Rules. In computing the actual
deferral percentage, the following rules apply.
(A) Any Before-Tax Contributions made on behalf
of an eligible employee who is not a Highly
Compensated Employee that are in excess of
the limitation described in Section 9.1 will
be excluded.
(B) Any Before-Tax Contributions made on behalf
of an eligible employee that are distributed
to the eligible employee pursuant to Section
9.6(c) will be excluded.
(C) Except as otherwise provided in Treasury
Regulations, Before-Tax Contributions taken
into account in determining the actual
contribution percentage under Section
9.3(b)(ii) will be excluded.
(D) To the extent permitted by Treasury
Regulations and determined by the
Administrator, all or any portion of the
Matching Contribution or Profit Sharing
Contribution or both for a Plan Year credited
to a subaccount in accordance with Section
3.6 will be included.
(E) Elective contributions under any other plan
that is aggregated with this Plan to satisfy
the requirements of Code section 410(b) will
be included.
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(F) To the extent provided in Treasury
Regulations, elective contributions made
under any other qualified cash or deferred
arrangement of any Affiliated Organization on
behalf of any eligible Employee who is a
Highly Compensated Employee will be included.
(c) If, for any Plan Year, the requirements of Subsection (b) are not
satisfied, the Administrator will determine the amount by which
Before-Tax Contributions made on behalf of each eligible employee
who is a Highly Compensated Employee for the Plan Year exceeds the
permissible amount as determined under Subsection (b). The
determination will be made by successively decreasing the rate of
Eligible Earnings reductions for such Highly Compensated Employees
who, during the Plan Year, had the greatest percentage of Eligible
Earnings reductions to the next lower percentage, then again
decreasing the percentage of such Participants' Eligible Earnings
reductions, together with the percentage of Eligible Earnings
reductions for such Highly Compensated Employees who were already
at such lower percentage, to the next lower percentage, and
continuing such procedure for as many percentage decreases as the
Administrator deems necessary. The Administrator may make such
reductions in any amount.
(d) At such time as the Administrator specifies on or following the
last day of the Plan Year for which the determination described in
Subsection (c) is made, but in no case later than the last day of
the following Plan Year, the amount of excess Before-Tax
Contributions so determined, increased by Fund earnings or
decreased by Fund losses attributable to such excess as determined
under Section 9.5, will be distributed to each such Highly
Compensated Employee. The amount to be distributed pursuant to
the foregoing sentence with respect to any Plan Year will be
reduced by the portion of the amount, if any, distributed pursuant
to Section 9.1 that is attributable to Before-Tax Contributions
that relate to such Plan Year, determined by assuming that
Before-Tax Contributions in excess of the limitation described in
Section 9.1 for a given taxable year are the first contributions
made for a Plan Year falling within such taxable year. Additional
amounts to be distributed to each such Highly Compensated Employee
will be determined by successively decreasing the amount of
Before-Tax Contribution for Highly Compensated Employees who, for
the Plan Year, had the largest amount of Before-Tax Contributions
made on their behalf to the next lower amount, and continuing this
procedure until an amount equal to the aggregate amount of excess
Before-Tax Contributions has been removed from the Accounts of the
Highly Compensated Employees.
(e) To the extent required or permitted by Treasury Regulations, the
Administrator will or may, as the case may be, apply the
limitation described in this section separately to each group of
eligible employees who are included in a unit of Employees covered
by a collective bargaining agreement and those who are not
included in a different unit.
(f) If the Company elects to apply Code section 410(b)(4)(B) in
determining whether the Plan satisfies either of the tests
described in Section 9.2(b)(i) for a Plan Year beginning after
December 31, 1998, the Company may exclude from consideration all
eligible employees who are not Highly Compensated Employees and
have not met the minimum age and service requirements of Code
section 410(a)(1)(A).
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9.3. ACTUAL CONTRIBUTION PERCENTAGE LIMITATIONS.
(a) Notwithstanding Sections 3.2 and 3.4, for any Plan Year beginning
after December 31, 1996, Matching Contributions may be made on
behalf of and After-Tax Contributions may be made by Participants
who are Highly Compensated Employees only if the requirements of
Code section 401(m)(2), as set forth in Subsection (b), are
satisfied. To the extent deemed necessary by the Administrator in
order to comply with such requirements, the Administrator may, in
accordance with Plan Rules, prospectively decrease the rate at
which a Participant may make After-Tax Contributions.
(i) The requirements of Code section 401(m)(2) will be
satisfied for any Plan Year if, for that Plan Year, the
Plan satisfies either of the following tests:
(1) the "actual contribution percentage" for the Plan
Year for "eligible employees" who are Highly
Compensated Employees for the Plan Year is not more
than the product of the actual contribution
percentage for the preceding Plan Year for all
eligible employees for the preceding Plan Year who
were not Highly Compensated Employees (subject to
any adjustment required by Treasury Regulations to
reflect Plan coverage changes during the Plan Year
being tested), multiplied by one and one-quarter; or
(2) the excess of the actual contribution percentage for
the Plan Year for eligible employees who are Highly
Compensated Employees for the Plan Year over the
actual contribution percentage for the preceding
Plan Year for all eligible employees for the
preceding Plan Year who were not Highly Compensated
Employees is not more than two percentage points and
the actual contribution percentage for the Plan Year
for Highly Compensated Employees for the Plan Year
is not more than the product of the actual
contribution percentage for the preceding Plan Year
for all eligible employees for the preceding Plan
Year who were not Highly Compensated Employees,
multiplied by two.
(ii) For purposes of this section and Section 9.4:
(1) "eligible employee" means an Active Participant who
is eligible to have Matching Contributions made on
his or her behalf, or to make After-Tax
Contributions, for the Plan Year in question or who
would be eligible but for a suspension imposed under
Section 3.1(b)(iv) or 3.4(b)(iv).
(2) the "actual contribution percentage" with respect to
either of the two groups of eligible employees
referenced above, is the average of the ratios,
calculated separately for each eligible employee in
the particular group, of the aggregate amount of
Matching Contributions made on behalf of, and
After-Tax Contributions made by, the eligible
employee for the Plan Year, to the eligible
employee's Testing Wages for the Plan Year, or the
portion of the Plan Year during which he or she was
an eligible employee, as specified in Plan Rules.
In computing the actual contribution percentage the
following rules apply.
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(A) Except as otherwise provided in Treasury
Regulations, Matching Contributions taken
into account in determining the actual
deferral percentage under Section 9.2(b)(ii)
will be excluded.
(B) Matching Contributions taken into account for
purposes of the minimum contribution required
by Section 14.3(a) will be excluded.
(C) Any Matching Contributions forfeited pursuant
to Section 9.6(c) will be excluded.
(D) To the extent permitted by Treasury
Regulations and determined by the
Administrator, all or any portion of the
Before-Tax Contributions for the Plan Year on
behalf of eligible employees will be
included.
(E) To the extent permitted by Treasury
Regulations and determined by the
Administrator, all or any portion of the
Profit Sharing Contribution for a Plan Year
credited to a subaccount in accordance with
Section 3.6 will be included.
(F) Matching contributions (within the meaning of
Code section 401(m)(4)(A)) and after-tax
contributions made under any other plan that
is aggregated with this Plan to satisfy the
requirements of Code section 410(b) will be
included.
(G) To the extent required by Treasury
Regulations, matching contributions (within
the meaning of Code section 401(m)(4)(A)) and
after-tax contributions made under any other
qualified plan of any Affiliated Organization
on behalf of or by any eligible employee who
is a Highly Compensated Employee will be
included.
(b) If, for any Plan Year, the requirements of Subsection (a) are not
satisfied, the Administrator will determine the amount by which
After-Tax Contributions made by each Highly Compensated Employee
for the Plan Year and, if necessary, Matching Contributions made
on behalf of each Highly Compensated Employee for the Plan Year
exceeds the permissible amount as determined under Subsection (a),
such determination being made in accordance with the procedure
described in Section 9.2(c) with respect to reductions of Eligible
Earnings.
(c) At such time as the Administrator specifies on or following the
last day of the Plan Year for which the determination described in
Subsection (c) is made, but in no case later than the last day of
the following Plan Year, the amount of excess After-Tax and
Matching Contributions so determined with respect to each Highly
Compensated Employee, increased by Fund earnings or decreased by
Fund losses attributable to such excess as determined under
Section 9.5, will be distributed to such Highly Compensated
Employee; provided, however, that to the extent the excess
Matching Contributions would not be fully vested if retained in
the Plan, such excess will be forfeited rather than
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<PAGE>
distributed, and any such forfeitures will be applied as provided
in Section 3.2(d). Amounts to be distributed to each such Highly
Compensated Employee or forfeited will be determined by
successively decreasing the amount of After-Tax Contributions made
by and, if necessary, Matching Contributions made on behalf of
Highly Compensated Employees who, for the Plan Year, made the
largest After-Tax Contributions and had the largest amount of
Matching Contributions on their behalf to the next lower amount,
and continuing this procedure until an amount equal to the
aggregate amount of excess contributions has been removed from the
Accounts of the Highly Compensated Employees.
(d) To the extent provided in Treasury Regulations, the limitations
described in this section do not apply to any group of eligible
employees who are included in a unit of Employees covered by a
collective bargaining agreement.
(e) If the Company elects to apply Code section 410(b)(4)(B) in
determining whether the Plan satisfies either of the tests
described in Section 9.3(b)(i) for any Plan Year beginning after
December 31, 1998, the Company may exclude from consideration all
eligible employees who are not Highly Compensated Employees and
have not met the minimum age and service requirements of Code
section 410(a)(1)(A).
9.4. MULTIPLE USE LIMITATION.
(a) This section applies for any Plan Year beginning after
December 31, 1996 for which the sum of the actual deferral
percentage for eligible employees who are Highly Compensated
Employees, plus the actual contribution percentage for eligible
employees who are Highly Compensated Employees, exceeds the
"aggregate limit." For purposes of this subsection, the aggregate
limit is the greater of:
(i) The sum of:
(1) the product of one and one-quarter, multiplied by
the greater of:
(A) the actual deferral percentage for the Plan
Year for eligible employees who are not
Highly Compensated Employees, or
(B) the actual contribution percentage for the
Plan Year for eligible employees who are not
Highly Compensated Employees;
plus
(2) the sum of two percentage points plus the lesser of
the actual deferral percentage determined under item
(A) of clause (1) above or the actual contribution
percentage determined under item (B) of clause (1)
above, with such sum in no case exceeding twice the
lesser of such actual deferral percentage or actual
contribution percentage;
or
(ii) The sum of:
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(1) the product of one and one-quarter, multiplied by
the lesser of:
(A) the actual deferral percentage for the Plan
Year for eligible employees who are not
Highly Compensated Employees, or
(B) the actual contribution percentage for the
Plan Year for eligible employees who are not
Highly Compensated Employees;
plus
(2) the sum of two percentage points plus the greater of
the actual deferral percentage determined under item
(A) of clause (1) above or the actual contribution
percentage determined under item (A) of clause (1)
above, with such sum in no case exceeding twice the
lesser of such actual deferral percentage or actual
contribution percentage.
(b) If, for any Plan Year, the calculations under Subsection (a)
require that this section be applied, the Administrator will
determine the amount by which After-Tax Contributions made by each
Highly Compensated Employee for the Plan Year and Matching
Contributions made on behalf of each Highly Compensated Employee
for the Plan Year causes the excess amount determined under
Subsection (a), such determination being made in accordance with
the provisions of Section 9.3(c). At such time as the
Administrator specifies on or following the last day of the Plan
Year for which such determination is made, but in no case later
than the last day of the following Plan Year, the excess will be
corrected in accordance with Section 9.3(d).
(c) To the extent provided in Treasury Regulations, the limitations
described in this section do not apply to any group of eligible
employees who are included in a unit of employees covered by a
collective bargaining agreement.
9.5. EARNINGS OR LOSSES ON EXCESS CONTRIBUTIONS. The amount of Fund earnings
or losses with respect to the excess amount of contributions returned to
a Highly Compensated Employee pursuant to this article is an amount equal
to the product of the total earnings or losses for the Participant's
Account to which the excess contributions were credited for the Plan Year
with respect to which the determination is being made, multiplied by a
fraction, the numerator of which is the excess amount of contributions
made on the Participant's behalf to such Account for the Plan Year, and
the denominator of which is the closing balance of such Account for the
Plan Year, decreased by the amount of earnings added to that Account, or
increased by the amount of losses charged to that Account, for the Plan
Year.
9.6. AGGREGATE DEFINED CONTRIBUTION LIMITATIONS.
(a) Notwithstanding any contrary provisions of the Plan, there will
not be allocated to any Participant's Accounts for a Plan Year any
amount that would cause the aggregate "annual additions" with
respect to the Participant for the Plan Year to exceed the lesser
of
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<PAGE>
(i) $30,000 (or such dollar amount, adjusted to reflect
increases in the cost of living, as in effect under Code
section 415(c)(1)(A) for the calendar year during which the
Plan Year in question begins) and
(ii) 25 percent of the Participant's Section 415 Wages for the
Plan Year.
(b) For purposes of Subsection (a), the "annual additions" with
respect to a Participant for a Plan Year are the sum of -
(i) the aggregate amount of Before-Tax, Matching, Profit
Sharing and After-Tax Contributions allocated to the
Participant's Accounts under the Plan for the Plan Year
(including the amount of any Before-Tax, Matching or
After-Tax Contributions distributed to the Participant or
forfeited pursuant to Section 9.2(d) or 9.3(d) but
excluding any Before-Tax Contributions in excess of the
limitation set forth in Section 9.1 that are distributed to
the Participant by April 15 of the year following the year
to which such contributions relate) and employer
contributions, employee contributions and forfeitures
allocated to the Participant's accounts under any other
qualified defined contribution plan maintained by any
Affiliated Organization for the Plan Year; plus
(ii) the amount, if any, attributable to post-retirement medical
benefits that is allocated to a separate account for the
Participant as a "key employee" within the meaning of Code
section 416(i), to the extent required under Code section
419A(d)(1).
If a Before-Tax, Matching or Profit Sharing Contribution with
respect to a Plan Year is made more than 30 days after the due
date (including extensions) of the Company's federal income tax
return for the taxable year of the Company coinciding with the
Plan Year or in which the Plan Year ends, the contribution will be
an annual addition for the Plan Year during which the contribution
is made. If an After-Tax Contribution with respect to a Plan Year
is made more than 30 days after the end of the Plan Year, the
contribution will be an annual addition for the Plan Year during
which the contribution made.
(iii) If the Administrator, in his or her discretion, determines
that the limitation under Subsection (a) would otherwise be
exceeded for a Plan Year, to the extent necessary to
prevent such excess from occurring, the amount of After-Tax
Contributions made by or Before-Tax Contributions made on
behalf of the Participant, or both, will be prospectively
reduced.
(iv) If a further reduction of contributions is required, the
amount of the Matching Contribution that would otherwise be
allocated to the Participants' Matching Contribution
Account will be reduced and the aggregate amount of the
Contribution for the Plan Year will be reduced by the same
amount and then the amount of the Profit Sharing
Contribution that would otherwise be allocated to the
Participant's Profit Sharing Contribution Account will be
reduced and the aggregate amount of the Profit Sharing
Contribution for the Plan Year will be reduced by the same
amount.
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<PAGE>
(v) If, in spite of such reduction and as a result of the
allocation of forfeitures or a reasonable error in
estimating the amount of the Participant's Eligible
Earnings, Section 415 Wages, Before-Tax Contributions or
other elective deferrals within the meaning of Code section
402(g)(3) for the Plan Year, the limitation would otherwise
be exceeded, then, to the extent required to prevent such
excess,
(1) the amount of After-Tax Contributions made by the
Participant for the Plan Year, together with
earnings on such contributions, will be returned to
the Participant, then
(2) the amount of Before-Tax Contribution made for the
Participant, together with earnings on such
contributions, will be distributed to the
Participant and any Matching Contributions
attributable to the amount so distributed, together
with earnings on such contributions, will be
forfeited and applied as provided in Section 3.2(d),
then
(3) if a further excess would otherwise exist, the
amount of such excess will be held unallocated in a
suspense account and will be allocated to all other
eligible Participants for the Plan Year and, to the
extent necessary, subsequent Plan Years, before
Matching and Profit Sharing Contributions are made
for such Plan Year or Years, and will be applied
toward the amount of such contributions for such
Plan Year or Years.
9.7. AGGREGATE DEFINED CONTRIBUTION/DEFINED BENEFIT LIMITATIONS.
(a) In no event will the amount of a Participant's annual additions
under the Plan for any Plan Year beginning before January 1, 2000
exceed an amount that would cause the decimal equivalent of the
sum of the "defined benefit fraction" plus the "defined
contribution fraction" to exceed one.
(b) The "defined benefit fraction" is a fraction, the numerator of
which is the Participant's aggregate projected annual benefit
under all qualified defined benefit pension plans maintained by
any Affiliated Organization (determined as of the end of the Plan
Year), and the denominator of which is the lesser of:
(i) 125 percent of the maximum dollar benefit limitation in
effect under Code section 415(b)(1)(A) for the calendar
year during which the Plan Year in question begins; and
(ii) 140 percent of the average Section 415 Wages of the
Participant during the three consecutive Plan Years during
which he or she was a participant in any such defined
benefit pension plan which produce the highest average.
(c) The "defined contribution fraction" is a fraction, the numerator
of which is the sum of the annual additions to the Participant's
accounts for the Plan Year under this Plan and any other qualified
defined contribution plans maintained by any Affiliated
Organization, determined in the manner described in Section 9.6,
and the denominator of which is the aggregate of the lesser of:
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<PAGE>
(i) 125 percent of the maximum annual addition dollar
limitation in effect under Code section 415(c)(1)(A) for
the calendar year during which the Plan Year in question
begins; and
(ii) 140 percent of 25 percent of the Participant's Section 415
Wages for the Plan Year,
applied for all years during which the Participant was
employed with an Affiliated Organization, without regard to
whether there was a defined contribution plan in effect
during all such years.
(d) If the annual additions that would otherwise be made with respect
to a Participant for a Plan Year would cause the limitation of
Subsection (a) to be exceeded, the Participant's benefit under one
or more defined benefit pension plans maintained by an Affiliated
Organization will, to the extent provided in such plans, be
reduced to the extent necessary to prevent such excess from
occurring, and, if a sufficient reduction cannot be made under
such plans, the provisions of Section 9.6(c) will be applied to
reduce the amount of the annual additions to the Participant's
Accounts under this Plan for such Plan Year to the extent
necessary to prevent such excess.
9.8. ADMINISTRATOR'S DISCRETION. Notwithstanding the foregoing provisions of
this article, the Administrator may apply the provisions of Sections 9.1
through 9.7 in any manner permitted by Treasury Regulations that will
cause the Plan to satisfy the limitations of the Code incorporated in
such sections and Treasury Regulations thereunder, and the
Administrator's good faith application of Treasury Regulations is binding
on all Participants and Beneficiaries.
44
<PAGE>
ARTICLE
10.
Service Rules
10.1. COMPUTATION PERIOD. The "Computation Period" is -
(a) for the purpose of determining whether an Employee has satisfied
the eligibility service requirements described in Section 2.1(a),
the 12-month period commencing with the date on which he or she
first completes an Hour of Service of the type specified at
Section 10.3(a)(i) and, thereafter, Plan Years, beginning with the
Plan Year that includes the first anniversary of that date; and
(b) for the purpose of determining the extent of an Employee's Vesting
Service, Plan Years.
10.2. VESTING SERVICE. The term "Vesting Service" with respect to an Employee
means, except as otherwise provided in Section 10.5, the aggregate number
of Computation Periods of the type specified at clause (b) of Section
10.1 during each of which the Employee completes at least 1000 Hours of
Service.
10.3. HOUR OF SERVICE.
(a) Subject to the remaining subsections of this section, the term
"Hour of Service," with respect to an Employee, includes and is
limited to -
(i) each hour for which the Employee is paid, or entitled to
payment, for the performance of duties for an Affiliated
Organization;
(ii) each hour for which the Employee is paid, or entitled to
payment, by an Affiliated Organization on account of a
period of time during which no duties are performed
(irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness (including
disability), layoff, jury duty, military duty or leave of
absence;
(iii) each hour for which the Employee is not paid or entitled to
payment but which is required by federal law to be credited
to the Employee on account of his or her military service
or similar duties; and
(iv) each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by an Affiliated
Organization; provided, first, that Hours of Service taken
into account under clause (i), (ii) or (iii) will not also
be taken into account under this clause (iv); and second,
that Hours of Service taken into account under this clause
(iv) that relate to periods specified in clause (ii) will
be subject to the rules under Subsection (b).
(b) The following rules will apply for purposes of determining the
Hours of Service completed by an Employee under Subsection
(a)(ii):
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<PAGE>
(i) No more than 501 hours will be credited to the Employee on
account of any single continuous period during which the
Employee performs no duties (whether or not such period
occurs in a single Computation Period).
(ii) No more than the number of hours regularly scheduled for
the performance of duties for the period during which no
duties are performed will be credited to the Employee for
such period.
(iii) The Employee will not be credited with hours for which
payments are made solely to reimburse medical or medically
related expenses.
(iv) A payment will be deemed to be made by or due from an
Affiliated Organization, regardless of whether such payment
is made by or due from the Affiliated Organization directly
or indirectly through a trust fund or insurer to which the
Affiliated Organization contributes or pays premiums.
(v) If the payment made or due is calculated on the basis of
units of time, the number of Hours of Service to be
credited will be the number of regularly scheduled working
hours included in the units of time on the basis of which
the payment is calculated; provided, that, if such a
payment is made to an Employee described in Subsection
(d)(i), the number of Hours of Service to be credited will
be the number of equivalent hours determined under
Subsection (d)(i) that are included in the units of time on
the basis of which the payment is calculated.
(vi) If the payment made or due is not calculated on the basis
of units of time, the number of Hours of Service to be
credited will be equal to the amount of the payment,
divided by the Employee's most recent hourly rate of
compensation before the period during which no duties are
performed.
(c) Hours of Service will be credited -
(i) in the case of Hours of Service described in Subsection
(a)(i), to the Computation Period in which the duties are
performed;
(ii) in the case of Hours of Service described in Subsection
(a)(ii), to the Computation Period or Periods in which the
period during which no duties are performed occurs;
provided, that, if the payment is not calculated on the
basis of units of time, the Hours of Service will not be
allocated between more than the first two Computation
Periods of such period;
(iii) in the case of Hours of Service described in Subsection
(a)(iii), to the Computation Period or Periods determined
by the Administrator in accordance with the applicable
federal law; and
(iv) in the case of Hours of Service described in Subsection
(a)(iv), to the Computation Period or Periods to which the
award or agreement for back pay pertains.
(d) For purposes of determining the number of Hours of Service
completed by an Employee during a particular period of time -
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(i) an Employee who is not subject to the overtime provisions
of the Fair Labor Standards Act of 1938, as from time to
time amended, will be credited with 45 Hours of Service for
each calendar week during which he or she completes at
least one Hour of Service;
(ii) each other Employee will be credited with the number of
Hours of Service that he or she completes during such
period.
(e) Notwithstanding the foregoing provisions of this section, an
individual will be credited with the number of Hours of Service he
or she completes, determined in the manner specified in
Subsections (a) through (d),
(i) while, although not an Employee, he or she is considered to
be a "leased employee" of an Affiliated Organization or of
a "related person" (within the meaning of Code sections
414(n)(2) and 144(a)(3)), respectively, and
(ii) with any other organization to the extent such Hours of
Service are required to be taken into account pursuant to
Treasury Regulations under Code section 414(o).
10.4. ONE-YEAR BREAK IN SERVICE. An Employee will incur a "One-Year Break in
Service" if the Employee fails to complete at least 500 Hours of Service
during a Computation Period; provided, that, for purposes only of
determining whether an Employee has incurred such a One-Year Break in
Service, in addition to Hours of Service credited under Section 10.4,
there will be taken into account the number of Hours of Service that
otherwise would have been credited to the Employee, or, if the number of
such hours of service cannot be determined, eight hours of service for
each day on which the Employee would have otherwise performed services
for an Affiliated Organization, during an authorized leave of absence,
while still employed with the Affiliated Organization, pursuant to any
established, nondiscriminatory leave policy of an Affiliated Organization
or due to -
(a) the Employee's pregnancy,
(b) the birth of the Employee's child,
(c) the placement of a child with the Employee in connection with the
adoption of such child by the Employee, or
(d) the Employee's caring for such child for a period beginning
immediately following such birth or placement;
provided, first, that the total number of such additional Hours of
Service taken into account by reason of any such absence will not exceed
501; second, that, if the Employee would be prevented from incurring a
One-Year Break in Service for the Computation Period in which such
absence commenced solely because the additional Hours of Service are so
credited, such Hours of Service will be credited only to such Computation
Period or, if a One-Year Break in Service for such Computation Period
would not be so prevented, such additional Hours of Service will be
credited to the Computation Period following the Computation Period
during which such absence commenced; and third, that, notwithstanding the
foregoing, no such additional Hours of Service will be credited in
connection with an absence for one of the reasons set forth at items
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(a) through (d) unless the Employee furnishes to the Administrator, on a
timely basis, such information as the Administrator reasonably requires
in order to establish the number of days during which the Employee was
absent for that reason. In addition, an Employee will be credited with
Hours of Service for the purpose of determining whether he or she has
incurred a One-Year Break in Service to the extent required by the Family
and Medical Leave Act of 1993.
10.5. LOSS OF SERVICE. If an Employee terminates employment and experiences at
least five consecutive One-Year Breaks in Service with respect to his or
her Vesting Service, then:
(a) if the Employee had a vested interest in his or her Account prior
to the Breaks in Service,
(i) Vesting Service completed prior to such Breaks in Service
will be taken into account in determining his or her vested
interest in his or her Accounts attributable to
contributions made for periods after the Breaks in Service
but only if the Employee completes one year of Vesting
Service following such Breaks in Service, and
(ii) the extent of the Employee's vested interest in his or her
Accounts as determined under Section 7.1 prior to the
Breaks in Service will not be increased by Vesting Service
completed following the Breaks in Service; or
(b) if the Employee had no vested interest in his or her Account prior
to the Breaks in Service, the Employee's Vesting Service completed
prior to the Breaks in Service will not be taken into account for
any purpose under the Plan.
10.6. PRE-ACQUISITION SERVICE. Service with an Affiliated Organization prior
to the date on which it became an Affiliated Organization (or, with
another entity prior to the acquisition of such entity's business or
assets by an Affiliated Organization) will be taken into account under
this Plan only if, to the extent and for the purposes, provided in any
agreement pursuant to which it became an Affiliated Organization (or such
business or assets were acquired) or as provided by resolution of the
Company's Board. If such Hours of Service are to be taken into account,
unless otherwise specifically provided in such agreement or resolution,
such Hours of Service will be determined in accordance with the
provisions of this article. If less than the entire period of employment
with an Affiliated Organization prior to its becoming such (or with
another entity prior to the acquisition of its business or assets) is to
be taken into account, the extent to which such period of employment is
to be taken into account will be specified in an exhibit to the Plan.
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ARTICLE
11.
Adoption, Amendment and Termination
11.1. ADOPTION BY AFFILIATED ORGANIZATIONS. An Affiliated Organization may
adopt this Plan and become a Participating Employer with the prior
approval of the Administrator by furnishing to the Administrator a
certified copy of a resolution of its Board adopting the Plan. Any
adoption of the Plan by an Affiliated Organization, however, must either
be approved in advance or ratified by the Company's Board prior to the
end of the fiscal year of such Affiliated Organization in which it adopts
the Plan.
11.2. AUTHORITY TO AMEND AND PROCEDURE.
(a) The Company reserves the right to amend the Plan at any time, to
any extent that it may deem advisable. Each amendment must be
stated in a written instrument approved in advance or ratified by
the Company's Board and executed in the name of the Company by a
duly authorized officer or the Company's Director of Compensation,
Benefits & HRIS, and attested by the Secretary or an Assistant
Secretary. On and after the effective date of the amendment, the
Plan will be deemed to have been amended as set forth in the
instrument, and all interested persons will be bound by the
amendment; provided, first, that no amendment will increase the
duties or liabilities of the Trustee or Administrator without its
written consent; and, second, that no amendment will have any
retroactive effect so as to deprive any Participant, or any
Beneficiary of a deceased Participant, of any benefit already
accrued or vested or of any option with respect to the form of
such benefit that is protected under Code section 411(d)(6),
except that any amendment that is required to conform the Plan
with government regulations so as to qualify the Trust for income
tax exemption may be made retroactively to the Effective Date of
the Plan or to any later date.
(b) If the schedule for determining the extent to which benefits under
the Plan are vested is changed, whether by amendment or on account
of the Plan's becoming or ceasing to be a top-heavy plan, each
Participant who has completed at least three years of vesting
service may elect to have his or her vested benefits determined
without regard to such change by giving written notice of such
election to the Administrator within the period beginning on the
date such change was adopted (or the Plan's top heavy status
changed) and ending 60 days after the latest of (i) the date such
change is adopted, (ii) the date such change becomes effective or
(iii) the date the Participant is issued notice of such change by
the Administrator or the Trustee. Except as otherwise provided in
an amendment permitted by Treasury Regulations, if an optional
form of benefit payment protected under Code section 411(d)(6) is
eliminated, each Participant may elect to have that portion of the
value of his or her Accounts that was accrued as of the date of
such elimination, distributed in the optional form of benefit
payment that was eliminated.
(c) The provisions of the Plan in effect at the termination of a
Participant's employment will, except as specifically provided
otherwise in any subsequent amendment, continue to apply to such
Participant.
11.3. AUTHORITY TO TERMINATE AND PROCEDURE. The Company expects to continue
the Plan indefinitely but reserves the right to terminate the Plan in its
entirety at any time. Each Participating
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Employer expects to continue its participation in the Plan indefinitely
but reserves the right to cease its participation in the Plan at any
time. The Plan will terminate in its entirety as of the date specified
by the Company in a written notice adopted and executed in the manner of
an amendment. The Plan will terminate with respect to a Participating
Employer as of a date specified in a written instrument approved in
advance or ratified by the Participating Employer's Board and executed in
the name of the Participating Employer by a duly authorized officer.
11.4. VESTING UPON TERMINATION, PARTIAL TERMINATION OR DISCONTINUANCE OF
CONTRIBUTIONS. Upon the termination of the Plan or upon the complete
discontinuance of contributions, the Accounts of each "affected employee"
will vest in full. For purposes of this section, "affected employee"
means a Participant or former Participant who, as of the effective date
of the termination or complete discontinuance of contributions (a) is
actively employed with an Affiliated Organization or (b) has terminated
employment and has neither received a distribution of his or her Accounts
of the type described in Section 7.2 nor experienced at least five
consecutive One-Year Breaks in Service. Upon the partial termination of
the Plan, the Accounts of each Participant as to whom the Plan has been
partially terminated will vest in full.
11.5. DISTRIBUTION FOLLOWING TERMINATION, PARTIAL TERMINATION OR DISCONTINUANCE
OF CONTRIBUTIONS. After termination or partial termination of the Plan
or the complete discontinuance of contributions under the Plan, the
Trustee will continue to hold and distribute the Fund at the times and in
the manner provided by Section 8.1 as if such event had not occurred or,
if the Administrator so directs in accordance with Treasury Regulations,
the Trustee will distribute to each Participant the entire balance of his
or her Accounts.
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ARTICLE
12.
Definitions, Construction and Interpretations
The definitions and the rules of construction and interpretations set forth in
this article apply in construing this instrument unless the context otherwise
indicates.
12.1. ACCOUNT. An "Account" with respect to a Participant is any or all of the
accounts maintained on his or her behalf pursuant to Section 4.1, as the
context requires.
12.2. ACTIVE PARTICIPANT. An "Active Participant" is a Participant who is a
Qualified Employee.
12.3. ADMINISTRATOR. The "Administrator" of the Plan is the Company or any
individual or committee to whom or to which administrative duties are
delegated by the Company with respect to the delegated duties.
12.4. AFFILIATED ORGANIZATION. An "Affiliated Organization" is the Company and
any corporation that is a member of a controlled group of corporations
(within the meaning of Code section 1563(a) without regard to Code
sections 1563(a)(4) and 1563(e)(3)(C)) that includes the Company, any
trade or business (whether or not incorporated) that together with the
Company is under common control (within the meaning of Code section
414(c)), any member of an "affiliated service group" (within the meaning
of Code section 414(m)) of which the Company is a member or any other
organization that, together with the Company, is treated as a single
employer pursuant to Code section 414(o) and Treasury Regulations
thereunder; provided, that, for purposes of applying the limitations set
forth at Sections 9.6 and 9.7 of the Plan, such determination under Code
section 1563(a) will be made by substituting the phrase "more than 50
percent" for the phrase "at least 80 percent" wherever it appears in such
Code section.
12.5. AFTER-TAX CONTRIBUTION ACCOUNT. The "After-Tax Contribution Account" is
the account established pursuant to clause (d) of Section 4.1.
12.6. AFTER-TAX CONTRIBUTIONS. "After-Tax Contributions" means contributions
made by a Participant pursuant to section 3.4.
12.7. BEFORE-TAX CONTRIBUTION ACCOUNT. The "Before-Tax Contribution Account"
is the account established pursuant to clause (a) of Section 4.1.
12.8. BEFORE-TAX CONTRIBUTIONS. "Before-Tax Contributions" means contributions
made by the Participating Employers on behalf of Participants pursuant to
Section 3.1.
12.9. BENEFICIARY. A "Beneficiary" is a person designated or otherwise
determined under the provisions of Section 8.2 as the distributee of
benefits payable after the death of a Participant. A person designated
as, or otherwise determined to be, a Beneficiary under the terms of the
Plan has no interest in or rights under the Plan until the Participant in
question has died. A Beneficiary will cease to be such on the day on
which all benefits to which he, she or it is entitled under the Plan have
been distributed.
12.10. BOARD. The "Board" is the board of directors or comparable governing
body of the Affiliated Organization in question. When the Plan provides
for an action to be taken by the Board, the
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action may be taken by any committee or individual authorized to take
such action pursuant to a proper delegation by the board of directors or
comparable governing body in question.
12.11. CODE. The "Code" is the Internal Revenue Code of 1986, as amended. Any
reference to a specific provision of the Code includes a reference to
such provision as it may be amended from time to time and to any
successor provision.
12.12. COMMITTEE. The "Committee" is the administrative committee described in
Article 13.
12.13. COMPANY. The "Company" is BMC Industries, Inc. or any successor thereto.
12.14. COMPANY STOCK. "Company Stock" is common stock of the Company.
12.15. CONSENT OF SPOUSE. Whenever the consent of a Participant's spouse is
required with respect to any act of the Participant, such consent will be
deemed to have been obtained only if:
(a) the Participant's spouse executes a written consent to such act,
which consent acknowledges the effect of such act and is witnessed
by a Plan representative or a notary public; or
(b) the Administrator determines that no such consent can be obtained
because the Participant has no spouse, because the Participant's
spouse cannot be located, or because of such other circumstances
as may, under Treasury Regulations, justify the lack of such
consent.
Any such consent by the Participant's spouse or such determination by the
Administrator that such spouse's consent is not required is effective
only with respect to the particular spouse of the Participant who so
consented or with respect to whom such determination was made. Any such
consent by the Participant's spouse to an act of the Participant under
the Plan is irrevocable with respect to that act.
12.16. DISABLED. A Participant will be considered to be "Disabled" only if the
Administrator determines that he or she is absent from active employment
with all Affiliated Organizations by reason of illness, bodily injury or
disease which renders the Participant unable to engage in any gainful
occupation and which is likely to be of long and indefinite duration or
result in death.
12.17. EFFECTIVE DATE. The "Effective Date" of the Plan is April 1, 1979.
12.18. ELIGIBLE EARNINGS.
(a) The "Eligible Earnings" of a Participant from a Participating
Employer for any Plan Year for purposes of Before-Tax
Contributions. After-Tax Contributions and Matching Contributions
is the sum of all remuneration paid to the Participant by the
Participating Employer for the portion of a Plan Year in which he
or she is an Active Participant that is reportable in the "wages,
tips, other compensation" box of Internal Revenue Form W-2,
excluding (to the extent otherwise included) the amount of any
imputed income of the Participant with respect to such portion of
the Plan Year, increased by amounts that are deferred under
Section 3.1 as Before-Tax Contributions and amounts by which a
Participant's compensation from the Participating Employer for
such portion of the Plan Year is reduced under a Code section 125
cafeteria plan.
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(b) The Eligible Earnings of a Participant from a Participating
Employer for any Plan Year for the purpose of Profit Sharing
Contributions is, for non-sales personnel, the Participant's
annual base salary or wages paid to the Participant by the
Participating Employer during the Plan Year, including shift
premium, increased by amounts paid to the Participant by the
Participating Employer during the Plan Year for time in excess of
straight time but disregarding the portion of such amounts, if
any, representing a premium over straight time rates, and for
sales personnel, the greater of (i) the Participant's annual base
salary paid by the Participating Employer during the Plan Year or
(ii) the lesser of (1) the Participant's annual base salary plus
commission paid by the Participating Employer during the Plan Year
or (2) $60,000. In no event will severance pay of any kind or
nature, payments made pursuant to the BMC Industries, Inc.
Long-Term Incentive Plan or amounts attributable to the exercise
of a stock option be taken into account as Eligible Earnings.
(c) In no event will a Participant's Eligible Earnings for any Plan
Year be taken into account to the extent it exceeds $150,000 (or
such larger amount as may be permitted for the calendar year
during which such Plan Year begins under Code section 401(a)(17)).
12.19. EMPLOYEE. An "Employee" is any individual who performs services for an
Affiliated Organization as a common-law employee of the Affiliated
Organization.
12.20. EXCESS ELIGIBLE EARNINGS. The "Excess Eligible Earnings" of a
Participant from a Participating Employer for a Plan Year means the
portion of his or her Eligible Earnings from the Participating Employer
for the Plan Year, if any, in excess of the contribution and benefit base
in effect for the calendar year during which the Plan Year begins under
section 230 of the Social Security Act.
12.21. FUND. The "Fund" is the total of all of the assets of every kind and
nature, both principal and income, held in the Trust at any particular
time or, if the context so requires, one or more of the investment funds
described in Section 5.1.
12.22. GOVERNING LAW. To the extent that state law is not preempted by
provisions of the Employee Retirement Income Security Act of 1974, as
amended, or any other laws of the United States, this Plan will be
administered, construed, and enforced according to the internal,
substantive laws of the State of Minnesota, without regard to its
conflict of laws rules.
12.23. HEADINGS. The headings of articles and sections are included solely for
convenience. In the case of a conflict between a heading and the text of
the Plan, the text controls.
12.24. HIGHLY COMPENSATED EMPLOYEE.
(a) A "Highly Compensated Employee" for any Plan Year beginning after
December 31, 1996 is any employee who -
(i) at any time during such Plan Year or the 12-month period
preceding such Plan Year, owns or owned (or is considered
as owning or having owned within the meaning of Code
section 318) more than five percent of the outstanding
stock of an Affiliated Organization or stock possessing
more than five percent of the total combined voting power
of all outstanding stock of an Affiliated Organization, or
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(ii) during the 12-month period preceding such Plan Year,
received compensation in excess of $80,000 (or such dollar
amount, adjusted to reflect increases in the cost of
living, as in effect under Code section 414(q)(1)(B) for
the calendar year during which the Plan Year in question
begins).
(b) For purposes of this section,
(i) an "employee" is any individual (other than an individual
who is a nonresident alien who receives no earned income
(within the meaning of Code section 911(d)(2)) from an
Affiliated Organization that constitutes income from
sources within the United States (within the meaning of
Code section 861(a)(3))) who, during the Plan Year for
which the determination is being made, performs services
for an Affiliated Organization as -
(1) a common-law employee,
(2) an employee pursuant to Code section 401(c)(1), or
(3) a leased employee who is treated as an employee of
an Affiliated Organization pursuant to Code section
414(n)(2) or 414(o)(2), and
(ii) "compensation" for any period means an employee's Section
415 Wages for the period (increased for Plan Years
beginning before January 1, 1998 by the amount of any
reductions to the employee's compensation for the period in
connection with an election by the employee made pursuant
to a plan maintained by an Affiliated Organization under
Code section 125 or 401(k)).
12.25. MATCHING CONTRIBUTION ACCOUNT. The "Matching Contribution Account" is
the account established pursuant to clause (b) of Section 4.1.
12.26. MATCHING CONTRIBUTIONS. "Matching Contributions" means contributions
made by the Participating Employers on behalf of Participants pursuant to
Section 3.2 or 3.6.
12.27. NORMAL RETIREMENT DATE. The "Normal Retirement Date" of a Participant is
the date on which he or she attains age 65.
12.28. NUMBER AND GENDER. Wherever appropriate, the singular number may be read
as the plural, the plural may be read as the singular, and the masculine
gender may be read as the feminine gender.
12.29. PARTICIPANT. A "Participant" is a current or former Qualified Employee
who has entered the Plan pursuant to the provisions of Article 2 and who
has not ceased to be a Participant pursuant to the provisions of Section
2.6.
12.30. PARTICIPATING BUSINESS UNIT. A "Participating Business Unit" is a
division, work location or other operational unit of a Participating
Employer, the eligible employees of which have been designated by the
Participating Employer to participate in the Plan, as communicated in
writing to the Company of the Participating Employer Board.
12.31. PARTICIPATING EMPLOYER. A "Participating Employer" is the Company and
any other Affiliated Organization that has adopted the Plan, or all of
them collectively, as the context requires, and
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their respective successors. An Affiliated Organization will cease to be
a Participating Employer upon a termination of the Plan as to its
Qualified Employees or upon its ceasing to be an Affiliated Organization.
12.32. PLAN. The "Plan" is that set forth in this instrument as it may be
amended from time to time.
12.33. PLAN RULE. A "Plan Rule" is a rule, policy, practice or procedure
adopted by the Administrator.
12.34. PLAN YEAR. A "Plan Year" is the calendar year.
12.35. PROFIT SHARING CONTRIBUTION ACCOUNT. The "Profit Sharing Contribution
Account" is the account established pursuant to clause (c) of Section
4.1.
12.36. PROFIT SHARING CONTRIBUTIONS. "Profit Sharing Contributions" means
contributions made by the Participating Employers on behalf of
Participants pursuant to Section 3.3 or 3.6.
12.37. PROFIT SHARING PLAN ROLLOVER ACCOUNT. The "Profit Sharing Plan Rollover
Account" is the account established pursuant to clause (f) of Section
4.1.
12.38. QUALIFIED EMPLOYEE.
(a) Except as provided in Subsection (b), a "Qualified Employee" is an
Employee who:
(i) performs services for a Participating Business Unit as an
employee of a Participating Employer (as classified by the
Participating Employer at the time the services are
performed without regard to any subsequent
reclassification); or
(ii) is paid by a Participating Employer on a United States
payroll while on a temporary foreign assignment as an
employee of P.T. Vision-Ease Asia.
(b) An Employee who would otherwise be a Qualified Employee is not a
Qualified Employee if he or she:
(i) is a nonresident alien who receives no earned income
(within the meaning of Code section 911(d)(2) from a
Participating Employer that constitutes income from sources
within the United States (within the meaning of Code
section 861(a)(3)); or
(ii) is covered by a collective bargaining agreement, for whom
retirement benefits were the subject of good faith
bargaining between such person's representative and a
Participating Employer, and is not, as a result of such
bargaining, specifically covered by this Plan; or
(iii) is working in the United States on a temporary foreign
assignment.
12.39. ROLLOVER ACCOUNT. The "Rollover Account" is the account established
pursuant to clause (f) of Section 4.1.
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12.40. SECTION 415 WAGES.
(a) An individual's "Section 415 Wages" for any period is his or her
"compensation," within the meaning of Code section 415(c)(3) and
Treasury Regulations thereunder, for the period from all
Affiliated Organizations.
(b) The Administrator may, for any period, determine the items of
remuneration that, in accordance with Treasury Regulations, will
be included in Section 415 Wages for such period; provided that
for each purpose under this Plan, the Administrator's
determination will be uniform throughout any period.
12.41. TERMINATION OF EMPLOYMENT.
(a) For purposes of determining entitlement to a distribution under
this Plan, a Participant will be deemed to have terminated
employment only if he or she has completely severed his or her
employment relationship with all Affiliated Organizations or
become Disabled. Neither transfer of employment among Affiliated
Organizations nor absence from active service by reason of
disability leave, other than in connection with a Participant
becoming Disabled, or any other leave of absence will constitute a
termination of employment.
(b) With respect to his or her Before-Tax Contribution Account,
Matching Contribution Account, After-Tax Contribution Account and
Rollover Account -
(i) A Participant will be deemed to have terminated employment
in conjunction with the disposition of all or any portion
of the business operation of an Affiliated Organization
which is a disposition of a subsidiary or of substantially
all of the assets used in a trade or business of an
Affiliated Organization within the meaning of Code section
401(k)(10)(A) with respect to which the requirements of
Code section 401(k)(10)(B) and (C) are satisfied.
(ii) A Participant who, in conjunction with the disposition of
all or any portion of a business operation of an Affiliated
Organization which is not described in clause (i),
transfers employment to the acquirer of such business
operation or to any affiliate of such acquirer will not be
considered to have terminated employment. If a Participant
is deemed to have continued employment by reason of the
preceding sentence, such sentence will continue to apply to
such Participant in the event of any subsequent transfer of
employment in conjunction with the disposition of all or
any portion of a business operation of the initial acquirer
or any subsequent acquirers which is not a disposition of a
subsidiary of such acquirer or of substantially all of the
assets used in a trade or business of such acquirer within
the meaning of Code section 401(k)(10)(A) with respect to
which the requirements of Code section 401(k)(10)(B) and
(C) are satisfied. Except in conjunction with such a
disposition of a subsidiary or substantially all of the
assets used in a trade or business of the seller, such a
Participant will be considered to have terminated
employment only when he or she has severed the employment
relationship with all such acquirers and their affiliates.
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12.42. TESTING WAGES.
(a) An individual's "Testing Wages" for any Plan Year is his or her
Section 415 Wages for the Plan Year.
(b) Notwithstanding Subsection (a), in no event will a person's
Testing Wages for any Plan Year be taken into account to the
extent it exceeds $150,000 (or such other larger amount as may be
permitted for the calendar year during which such Plan Year begins
under Code section 401(a)(17)).
(c) The Administrator may, for any Plan Year, adopt any alternative
definition of Testing Wages that complies with Code section 414(s)
and Treasury Regulations thereunder; provided, that for each
purpose under this Plan, the definition so adopted will be uniform
throughout any Plan Year.
12.43. TREASURY REGULATIONS. "Treasury Regulations" mean regulations, rulings,
notices and other promulgations issued under the authority of the
Secretary of the Treasury that apply to, or may be relied upon in the
administration of, this Plan.
12.44. TRUST. The "Trust" is that created for purposes of implementing benefits
under the Plan.
12.45. TRUSTEE. The "Trustee" is the corporation and/or individual or
individuals who from time to time is or are the duly appointed and acting
trustee or trustees of the Trust.
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ARTICLE
13.
Administration of Plan
13.1. NAMED FIDUCIARY. The Company is the "named fiduciary" of the Plan for
purposes of the Employee Retirement Income Security Act of 1974, as
amended.
13.2. COMMITTEE.
(a) The general administration of the Plan on behalf of the Company
and the duty to carry out its provisions is vested in a Committee
composed of not fewer than three members. One member of the
Committee will be the head of the Company's human resources
function, a second member of the Committee will be the head of the
Company's financial function and a third member of the Committee
will be the head of the Company's treasury function. Additional
members may be appointed to the Committee by the Company's Board
to serve at its pleasure. Each such additional member will file
written acceptance of his or her appointment with the Company's
Board. A Committee member may resign by delivering his or her
written resignation to the Company's Board; and any Committee
member, other than the heads of the Company's human resources,
financial and treasury functions, may be removed, with or without
cause, by resolution of the Company's Board and the delivery of
written notice of removal to the removed member. Any resignation
or removal will be effective upon delivery of the written
resignation or notice of removal, as the case may be, or upon any
later date specified therein. Vacancies created by any resignation
or removal will be filled by appointment by the Company's Board;
provided, that, subject to there being at least three persons
serving as Committee members at all times, the Board need not fill
any vacancy so created.
(b) In addition to its general duties and power and authority in
connection with the administration of the Plan, the Committee has
the discretionary power and authority with respect to -
(i) The selection, designation and removal of the
Administrator, the Trustee and any investment managers of
the Fund;
(ii) The direction of investments of assets comprising the Fund
in insurance-company issued deposit administration or
similar group annuity contract or contracts; and
(iii) In the case of any investment fund maintained pursuant to
Section 5.1 the assets of which are primarily invested in
one or more insurance company issued deposit administration
or group annuity contracts, to determine, from time to
time, the portion of such investment fund, if any, that
will not be invested in such insurance-company issued
contracts and to direct the Trustee as to the specific
investments or types of investments with respect to such
portion of such investment fund; provided, that nothing
contained in this clause (iii) requires the Committee to
exercise such power or authority or limits the power or
authority
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of the Committee to delegate any such duties to the
Administrator, the Trustee or any investment manager.
(c) At least annually, the Committee will determine the Plan's funding
policy and short-and long-run financial needs and communicate the
same to the Trustee and any investment manager of the Fund.
(d) The Committee will perform its duties in accordance with the
following procedures:
(i) The head of the Company's human resources function will act
as the chair of the Committee and will preside over the
Committee's meetings;
(ii) The Committee will designate the head of the Company's
human resources function, or such other person as it may
determine, to serve as Administrator pursuant to Section
13.3, and may from time to time revoke such designation and
designate another person to serve as Administrator. Each
such designation must be in writing, and a copy of the
designation must be furnished to the Administrator and the
Trustee. The person designated to act as Administrator
must file a written acceptance with the Committee. Such
person's duty hereunder will terminate upon revocation of
such designation by the Committee or upon resignation as
Administrator by the person so designated. Such revocation
or resignation must be in writing and will be effective
upon delivery thereof to the Administrator or the Committee
as the case may be, and in either case to the Trustee;
(iii) The Committee will appoint a secretary who may, but need
not, be a member of the Committee, and who will keep
minutes of the Committee's meetings and perform such other
duties as may be specified from time to time by the
Committee;
(iv) The Committee may appoint such subcommittees with such
duties and powers as it may specify, and it may delegate
administrative powers to one or more of its members or to
such other person or entity as it may designate;
(v) The Committee will meet at such times and places and upon
such notice as its members may determine from time to time.
A majority of the current membership of the Committee will
constitute a quorum for the transaction of business, and
all acts of the Committee at any meeting will require, for
their validity, the affirmative vote of a majority of the
current membership of the Committee;
(vi) The Committee may adopt bylaws for the conduct of its
business, provided such bylaws are not inconsistent with
the provisions of this article;
(vii) No member of the Committee may vote with respect to a
decision of the Committee relating solely to his or her own
participation under the Plan.
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13.3. ADMINISTRATOR.
(a) The Administrator designated by the Committee will perform the
following administrative duties:
(i) the determination of initial and continuing eligibility of
Employees to participate in the Plan and enrollment of
Participants in the Plan;
(ii) the determination of Participants' entitlement to, and the
amount of contributions under the Plan;
(iii) the processing of Participants' Beneficiary designations;
(iv) the review of claims made pursuant to the Plan's benefit
claim procedure;
(v) the computation of the amount of each Participant's Account
balances;
(vi) the authorization of disbursements from the Fund in the
form of withdrawals, loans and distributions;
(vii) the preparation, distribution to Participants and filing
with appropriate governmental agencies of such reports,
disclosures and forms as are required by law, and retention
of copies thereof in the Administrator's files; and
(viii) such other duties as specified in the Plan or as the
Committee may delegate to the Administrator from time to
time.
(b) The Administrator may delegate some or all of his or her duties to
such other person as he or she may designate and may from time to
time revoke such authority and delegate it to another person. Each
such delegation must be in writing, and a copy thereof must be
furnished to the person to whom the duty is delegated. Such person
must file a written acceptance with the Administrator. Such
person's duty hereunder will terminate upon revocation of such
authority by the Administrator or upon withdrawal of such
acceptance by the person to whom the duty was delegated. Such
revocation or withdrawal must be in writing, and will be effective
upon delivery of a copy thereof to the person or entity to whom
the duty was delegated or to the Administrator as the case may be.
13.4. COMPENSATION AND EXPENSES. An Employee performing administrative duties
in connection with the Plan may not receive compensation from the Fund
for such services, but is entitled to reimbursement from the Fund for all
sums reasonably and necessarily expended in the performance of such
duties. The Committee and the Administrator may retain such independent
accounting, legal, clerical and other services as may reasonably be
required in the administration of the Plan and may pay reasonable
compensation from the Fund for such services or may reimburse the Company
from the Fund for reasonable compensation paid by the Company for such
services. Any such reimbursement or compensation and all other costs of
administering the Plan will be paid by the Trustee from the Fund but if
not so paid, will be paid by the Company, in either case upon statements
issued by the Committee or the Administrator.
13.5. ADOPTION OF RULES. The Committee and the Administrator each have the
discretionary power and authority to make and enforce such Plan Rules as
the Committee or the Administrator deems
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necessary or advisable in connection with the administration of the Plan
and to modify or rescind any Plan Rule at any time. Plan Rules will be
uniform and nondiscriminatory with respect to persons determined by the
Committee or the Administrator to be similarly situated.
13.6. DISCRETION. To the extent applicable to their respective administrative
duties, the Committee and the Administrator each have the discretionary
power and authority to make all determinations necessary for
administration of the Plan, except those determinations that the Plan
requires others to make, and to construe, interpret, apply and enforce
the Plan whenever necessary to carry out its intent and purpose and to
facilitate its administration, including, without limitation, the
discretionary power and authority to remedy ambiguities, inconsistencies,
omissions and erroneous Account balances. In the exercise of
discretionary powers, the Committee or the Administrator will treat all
persons determined by the Committee or the Administrator to be similarly
situated in a uniform and nondiscriminatory manner.
13.7. INDEMNIFICATION. The Participating Employers jointly and severally agree
to indemnify and hold harmless, to the extent permitted by law, each
director, officer, and employee of any Affiliated Organization against
any and all liabilities, losses, costs and expenses (including legal
fees) of every kind and nature that may be imposed on, incurred by, or
asserted against such person at any time by reason of his or her services
in connection with the Plan but only if he or she did not act dishonestly
or in bad faith or in willful violation of the law or regulations under
which such liability, loss, costs or expense arises. The Participating
Employers have the right, but not the obligation, to select counsel and
control the defense and settlement of any action for which a person may
be entitled to indemnification under this provision.
13.8. BENEFIT CLAIM PROCEDURE. If a request for a benefit by a Participant or
Beneficiary of a deceased Participant is denied in whole or in part, he
or she may, within 30 days after receipt of notice of the denial, file
with the Administrator a written claim objecting to the denial. Not
later than 90 days after receipt of such claim, the Administrator will
render a written decision on the claim to the claimant. If the claim is
denied in whole or in part, the decision will include: the reasons for
the denial; a reference to the Plan provision that is the basis for the
denial; a description of any additional material or information necessary
for the claimant to perfect the claim; an explanation as to why such
information or material is necessary; and an explanation of the Plan's
claim procedure. Not later than 60 days after receiving the
Administrator's written decision, the claimant may file with the
Administrator a written request for review of the Administrator's
decision, and the claimant or the representative may thereafter review
Plan documents that relate to the claim and submit written comments to
the Administrator. Not later than 60 days after receiving such request,
the Administrator will afford the claimant or the representative an
opportunity to present the claim in person to the Administrator. Not
later than 60 days after such presentation or, if there is no such
presentation, not later than 60 days after the Administrator's receipt of
the request for review, the Administrator will render a written decision
on the claim, which decision will include the specific reasons for the
decision, including references to specific Plan provisions where
appropriate. The 90- and 60-day periods during which the Administrator
must respond to the claimant may be extended by up to an additional 90 or
60 days, respectively, if special circumstances beyond the
Administrator's control so require and if notice of such extension is
given to the claimant. A claimant must exhaust the procedure described
in this section before pursuing the claim in any other proceeding.
13.9. CORRECTION OF ERRORS. If the Administrator determines that, by reason of
administrative error or other cause attributable to a Participating
Employer, the Account of any Participant has incurred
61
<PAGE>
a loss, the Administrator may enter into an agreement with the
Participating Employer under which the Account is fully restored and may,
upon such restoration, release the Participating Employer from further
responsibility.
62
<PAGE>
ARTICLE
14.
Miscellaneous
14.1. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. If this Plan is merged or
consolidated with, or its assets or liabilities are transferred to, any
other plan, each Participant will be entitled to receive a benefit
immediately after such merger, consolidation or transfer (if such other
plan were then terminated) that is equal to or greater than the benefit
he or she would have been entitled to receive immediately before such
merger, consolidation or transfer (if this Plan had then terminated but
without regard to Section 11.4).
14.2. LIMITED REVERSION OF FUND.
(a) Except as provided in Subsection (b), no corpus or income of the
Trust will at any time revert to any Affiliated Organization or be
used other than for the exclusive benefit of Participants and
their Beneficiaries by paying benefits and administrative expenses
of the Plan.
(b) Notwithstanding any contrary provision in the Plan,
(i) All contributions made by a Participating Employer to the
Trustee prior to the initial determination of the Internal
Revenue Service as to qualification of the Plan under Code
section 401(a) and the tax exempt status of the Trust under
Code section 501(a) will be repaid by the Trustee to the
Participating Employer, upon the Participating Employer's
written request, if the Internal Revenue Service rules that
the Plan is not qualified or the Trust is not tax exempt;
provided, that the Participating Employer must request such
determination within a reasonable time after adoption of
the Plan and the repayment by the Trustee to the
Participating Employer must be made within one year after
the date of denial of qualification of the Plan; and
(ii) To the extent a contribution is made by a Participating
Employer by a mistake of fact or a deduction is disallowed
a Participating Employer under Code section 404, the
Trustee will repay the contribution to the Participating
Employer upon the Participating Employer's written request;
provided, that such repayment must be made within one year
after the mistaken payment is made or the deduction is
disallowed, as the case may be. Each contribution to the
Plan by a Participating Employer is expressly conditioned
on such contribution's being fully deductible by the
Participating Employer under Code section 404.
14.3. TOP-HEAVY PROVISIONS.
(a) The provisions of this subsection will apply for any Plan Year
during which the Plan is "top heavy."
(i) Notwithstanding the provisions of Article 3, no
contributions will be made and allocated on behalf of any
"key employee" for any Plan Year during which the Plan is
top heavy unless the amount of contributions (excluding
Before-Tax Contributions) made and allocated for such Plan
Year on behalf of each
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<PAGE>
Participant who is not a key employee and who is employed
with an Affiliated Organization on the last day of the Plan
Year, expressed as a percentage of the Participant's
Testing Wages for the Plan Year, is at least equal to the
lesser of
(1) three percent, or
(2) the largest percentage of such Testing Wages at
which contributions (including Before-Tax
Contributions) are made and allocated on behalf of
any key employee for such Plan Year.
(ii) If, in addition to this Plan, an Affiliated Organization
maintains another qualified defined contribution plan or
one or more qualified defined benefit pension plans during
a Plan Year, the provisions of clause (i) will be applied
for such Plan Year -
(1) by taking into account the employer contributions
(other than elective deferrals for a non-key
employee) on behalf of the Participant under all
such defined contribution plans;
(2) without regard to any Participant who is not a key
employee and whose accrued benefit, expressed as a
single life annuity, under a defined benefit pension
plan maintained by the Affiliated Organization for
such Plan Year is not less than the product of -
(A) the Participant's average Testing Wages for
the period of consecutive years not exceeding
the period of consecutive years (not
exceeding five) when the Participant had the
highest aggregate Testing Wages, disregarding
years in which the Participant completed less
than 1000 Hours of Service, multiplied by
(B) the lesser of (I) two percent per year of
service, disregarding years of service
beginning after the close of the last Plan
Year in which such defined benefit plan was a
top heavy plan or (II) 20 percent.
(iii) Notwithstanding Section 7.1(h), each Participant's vested
nonforfeitable interest in the portion of his or her Profit
Sharing Contribution Account not described in Section
7.1(a) will be determined in accordance with the following
schedule:
<TABLE>
<CAPTION>
Vested
Years of Vesting Service Interest
------------------------ --------
<S> <C>
Less Than Three Years 0%
Three or More Years 100%
</TABLE>
If the Plan ceases to be a top heavy plan, the portion of a
Participant's Profit Sharing Contribution Account that has
vested pursuant to the foregoing schedule will remain
nonforfeitable, notwithstanding the subsequent application
of the
64
<PAGE>
vesting schedule set forth in Section 7.1(h) to amounts
subsequently allocated to the Account.
(b) For purposes of Subsection (a),
(i)
(1) The Plan will be a "top-heavy plan" for a particular
Plan Year if, as of the last day of the initial Plan
Year or, with respect to any other Plan Year, as of
the last day of the preceding Plan Year, the
aggregate of the Account balances of key employees
is greater than 60 percent of the aggregate of the
Account balances of all Participants.
(2) For purposes of calculating the aggregate Account
balances for both key employees and employees who
are not key employees:
(A) Any distributions made within the five-year
period preceding the Plan Year for which the
determination is being made, other than a
distribution transferred or rolled over to a
plan maintained by an Affiliated
Organization, will be included;
(B) Amounts transferred or rolled over from a
plan not maintained by an Affiliated
Organization at the initiation of the
Participant will be excluded;
(C) The Account balances of any key employee and
any employee who is not a key employee who
has not performed an Hour of Service at any
time during the five-year period ending on
the date as of which the determination is
being made will be excluded; and
(D) The terms "key employee" and "employee"
include the Beneficiaries of such persons who
have died.
(ii)
(1) Notwithstanding the provisions of clause (i), this
Plan will not be a top-heavy plan if it is part of
either a "required aggregation group" or a
"permissive aggregation group" and such aggregation
group is not top-heavy. An aggregation group will
be top-heavy if the sum of the present value of
accrued benefits and account balances of key
employees is more than 60 percent of the sum of the
present value of accrued benefits and account
balances for all Participants, such accrued benefits
and account balances being calculated in each case
in the same manner as set forth in clause (i).
(2) Each plan in a required aggregation group will be
top-heavy if the group is top-heavy. No plan in a
required aggregation group will be top-heavy if the
group is not top-heavy.
65
<PAGE>
(3) If a permissive aggregation group is top-heavy, only
those plans that are part of an underlying
top-heavy, required aggregation group will be
top-heavy. No plan in a permissive aggregation group
will be top-heavy if the group is not top-heavy.
(iii) The "required aggregation group" consists of (1) each plan
of an Affiliated Organization in which a key employee
participates and (2) each other plan of an Affiliated
Organization that enables a plan in which a key employee
participates to meet the nondiscrimination requirements of
Code sections 401(a)(4) or 410.
(iv) A "permissive aggregation group" consists of those plans
that are required to be aggregated and one or more plans
(providing comparable benefits or contributions) that are
not required to be aggregated, which, when taken together,
satisfy the requirements of Code sections 401(a)(4) and
410.
(v) For purposes of applying clauses (ii), (iii) and (iv) of
this Subsection (b), any qualified defined contribution
plan maintained by an Affiliated Organization at any time
within the five-year period preceding the Plan Year for
which the determination being made which, as of the date of
such determination, has been formally terminated, has
ceased crediting service for benefit accruals and vesting
and has been or is distributing all plan assets to
participants or their beneficiaries, will be taken into
account to the extent required or permitted under such
clauses and under Code section 416.
(c) A "key employee" is any individual who is or was employed with an
Affiliated Organization and who, at any time during the Plan Year
in question or any of the preceding four Plan Years is or was:
(i) An officer of the Affiliated Organization (an
administrative executive in regular and continued service
with the Affiliated Organization) whose Section 415 Wages
for such Plan Year exceed 50 percent of the amount in
effect under Code section 415(b)(1)(A) for such Plan Year,
but in no case will there be taken into account more than
the lesser of (a) 50 persons, or (b) the greater of (i)
three persons or (ii) ten percent of the number of the
Affiliated Organization's employees, excluding for purposes
of determining the number of such officers, any employees
described in Code section 414(q)(5);
(ii) The owner of an interest in the Affiliated Organization
that is not less than the interest owned by at least ten
other persons employed with the Affiliated Organization;
provided, that, such owner will not be a key employee
solely by reason of such ownership for a Plan Year if he or
she does not own more than one-half of one percent of the
value of the outstanding interests of the Affiliated
Organization or if the amount of his or her Section 415
Wages for such Plan Year is less than the amount in effect
under Code section 415(c)(1)(A) for such Plan Year;
(iii) The owner of more than five percent of the Affiliated
Organization's outstanding stock or more than five percent
of the total combined voting power of the Affiliated
Organization's stock; or
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<PAGE>
(iv) The owner of more than one percent of the Affiliated
Organization's outstanding stock or more than one percent
of the total combined voting power of the Affiliated
Organization's stock, whose Section 415 Wages for such Plan
Year exceed $150,000.
For purposes of this Subsection (c), ownership of an Affiliated
Organization's stock will be determined in accordance with Code
section 318; provided, that subparagraph 318(a)(2)(C) will be
applied by substituting the phrase "5 percent" for the phrase "50
percent" wherever it appears in such Code section.
(d) If, for any Plan Year beginning before January 1, 2000, an
Affiliated Organization maintains a qualified defined contribution
plan and a qualified defined pension plan, the limitation on
combined contributions and accrued benefits will be adjusted by
substituting "100 percent" for "125 percent" in the definitions of
the defined benefit fraction and the defined contribution fraction
in Section 9.7; provided, first, that this Subsection (d) will be
applied prospectively only to prohibit additional contributions
allocated, and forfeitures reallocated, to and defined benefit
accruals for, a Participant and will not reduce any allocations or
reallocations made to, or benefits accrued for, such Participant
prior to the Plan Year for which it first becomes effective; and,
second, that if the Plan would not be a top heavy plan if "90
percent" were substituted for "60 percent" in clause (i)(1) of
Subsection (b), this Subsection (d) will not apply if -
(i) the aggregate employer contributions (other than elective
deferrals) under all such qualified defined contribution
plans on behalf of each Participant who is not a key
employee and who is employed with an Affiliated
Organization on the last day of the Plan Year is not less
than seven and one-half percent of his or her Testing Wages
for the Plan Year, or
(ii) the accrued benefit for each Participant under the
qualified defined benefit pension plan is not less than the
benefit described in Subsection (a)(ii)(2), applied by
substituting "3 percent" for "2 percent" in item (I) of
clause (B) and "30 percent" for "20 percent" in item (II)
of clause (B).
14.4. NO EMPLOYMENT RIGHTS CREATED. The establishment and maintenance of the
Plan neither gives any Employee a right to continuing employment nor
limits the right of an Affiliated Organization to discharge or otherwise
deal with the Employee without regard to the effect such action might
have on his or her initial or continued participation in the Plan.
14.5. SPECIAL PROVISIONS. Special provisions of the Plan applicable only to
certain Participants will be set forth on an exhibit to the Plan. In the
event of a conflict between the terms of the exhibit and the terms of the
Plan, the exhibit controls.
14.6. QUALIFIED MILITARY SERVICE.
(a) The provisions of this section apply only to an Employee who is
reemployed on or after October 13, 1996 and whose reemployment
rights are protected under the Uniformed Services Employment and
Reemployment Rights Act of 1994 ("USERRA") and are intended to
comply with the requirements of Code section 414(u).
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<PAGE>
(b) Notwithstanding any other provisions of the Plan to the contrary,
a Qualified Employee who leaves the employ of a Participating
Employer for qualified military service and returns to employment
with a Participating Employer will be entitled to the restoration
of benefits under the Plan which would have accrued but for the
Qualified Employee's absence due to qualified military service.
(c) A Qualified Employee's Participating Employer will make Before-Tax
Contributions on behalf of the Qualified Employee for the Plan
Years during which he or she would have been an Active Participant
but for his or her qualified military service in the amount by
which his or her Eligible Earnings have been reduced in accordance
with Section 3.1 and the following additional rules:
(i) the Qualified Employee may elect to have his or her
Eligible Earnings reduced subject to the maximum amount the
Qualified Employee could have reduced his or her Eligible
Earnings during the period of qualified military service;
(ii) the Qualified Employee may elect to reduce his or her
Eligible Earnings under this subsection at any time during
the period that begins on his or her date of reemployment
and has the same length as the lesser of five years or the
period of the Qualified Employee's qualified military
service multiplied by three;
(iii) the Before-Tax Contributions under this subsection are not
subject to the limitations described in Section 9.2 or 9.4.
(d) A Qualified Employee's Participating Employer will make Matching
Contributions with respect to the Qualified Employee's Before-Tax
Contributions pursuant to Subsection (c) in the same amount as if
such Before-Tax Contributions had actually been made during the
Participant's period of qualified military service. The Matching
Contributions made pursuant to this subsection are not subject to
the limitations described in Section 9.3 or 9.4.
(e) The following additional rules and conditions apply with respect
to qualified military service notwithstanding any contrary
provision of the Plan:
(i) an Employee will not be treated as having incurred a
One-Year Break in Service by reason of his or her qualified
military service;
(ii) any period of qualified military service will be counted as
Eligibility Service and Vesting Service;
(iii) for purposes of Section 3.3(b), a Qualified Employee will
be treated as employed by the Participating Employer and
accruing service during any period of qualified military
service;
(iv) for purposes of determining the Qualified Employee's
Eligible Earnings and Section 415 Wages, the Qualified
Employee will be treated as receiving compensation from the
Participating Employer with whom he or she was employed
immediately before the period of qualified military service
during the period of qualified military service in an
amount equal to the compensation he or she would have
received during such period if he or she were not in
qualified
68
<PAGE>
military service determined based on the rate of pay the
Qualified Employee would have received from the
Participating Employer but for the absence due to qualified
military service; provided, however, if the compensation
the Qualified Employee would have received from the
Participating Employer is not reasonably certain, then the
Qualified Employee's rate of compensation will be equal to
his or her average compensation for the 12-month period
preceding the qualified military service (or, if shorter,
the period of employment immediately preceding the
qualified military service);
(v) contributions on behalf of the Qualified Employee will be
subject to the limitations of Article 9 only with respect
to the Plan Years to which such contribution relates;
(vi) the Qualified Employee will not be entitled to any
crediting of earnings on contributions for any period prior
to actual payment to the Trust; and
(vii) the Qualified Employee will not be entitled to restoration
of any forfeitures which were not allocated to his or her
Account as a result of his or her qualified military
service.
(f) For purposes of this section, "qualified military service" means
any service in the uniformed services as defined in USERRA by a
Qualified Employee who is entitled to reemployment rights with a
Participating Employer under USERRA.
14.7. SHORT PLAN YEARS. To the extent required by and in accordance with
Treasury Regulations, for the initial Plan Year and any other Plan Year
which is less than 12 months long, the dollar limitations in effect for
purposes of Code sections 401(a)(17), 414(q), 415 and 416 will be
adjusted to reflect the short Plan Year.
69
<PAGE>
BMC INDUSTRIES, INC.
EXECUTIVE BENEFIT PLAN
AS ADOPTED EFFECTIVE JANUARY 1, 1993
<PAGE>
BMC INDUSTRIES, INC.
EXECUTIVE BENEFIT PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1 DESCRIPTION OF PLAN . . . . . . . . . . . . . . . . . . . . .1
1.1 Plan Name . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Plan Purpose. . . . . . . . . . . . . . . . . . . . . . . . .1
1.3 Plan Type . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.4 Participating Employers . . . . . . . . . . . . . . . . . . .1
ARTICLE 2 DEFINITIONS, CONSTRUCTION AND INTERPRETATION. . . . . . . . .2
2.1 Account . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.2 Administrator . . . . . . . . . . . . . . . . . . . . . . . .2
2.3 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . .2
2.4 Board . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.5 Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.6 Company . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.7 Compensation. . . . . . . . . . . . . . . . . . . . . . . . .2
2.8 Effective Date. . . . . . . . . . . . . . . . . . . . . . . .2
2.9 Employer. . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.10 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . .2
2.12 Participant . . . . . . . . . . . . . . . . . . . . . . . . .2
2.13 Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.14 Qualified Plans . . . . . . . . . . . . . . . . . . . . . . .3
2.15 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.16 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . .3
ARTICLE 3 PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . .4
3.1 Commencement of Participation . . . . . . . . . . . . . . . .4
3.2 Condition of Participation. . . . . . . . . . . . . . . . . .4
3.3 Loss of Eligibility . . . . . . . . . . . . . . . . . . . . .4
ARTICLE 4 BENEFITS. . . . . . . . . . . . . . . . . . . . . . . . . . .5
4.1 Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . .5
4.2 Excess Matching Contribution Credits. . . . . . . . . . . . .5
4.3 Excess Profit Sharing Contribution Credits. . . . . . . . . .5
4.4 Earnings Credits. . . . . . . . . . . . . . . . . . . . . . .5
4.5 Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . .5
ARTICLE 5 DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . .6
5.1 Distribution of Benefits. . . . . . . . . . . . . . . . . . .6
5.2 Beneficiary Designation . . . . . . . . . . . . . . . . . . .6
5.3 Payment in Event of Incapacity. . . . . . . . . . . . . . . .7
i
<PAGE>
ARTICLE 6 SOURCE OF PAYMENTS; NATURE OF INTEREST . . . . . . . . . . .8
6.1 Establishment of Trust. . . . . . . . . . . . . . . . . . . .8
6.2 Source of Payments. . . . . . . . . . . . . . . . . . . . . .8
6.3 Status of Plan. . . . . . . . . . . . . . . . . . . . . . . .8
6.4 Non-assignability of Benefits . . . . . . . . . . . . . . . .8
ARTICLE 7 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . .9
7.1 Administration. . . . . . . . . . . . . . . . . . . . . . . .9
7.2 Benefit Claim Procedure . . . . . . . . . . . . . . . . . . .9
7.3 Amendment and Termination . . . . . . . . . . . . . . . . . .9
7.4 No Employment Rights Created. . . . . . . . . . . . . . . . .10
7.5 Withholding and Offsets . . . . . . . . . . . . . . . . . . .10
7.6 Other Benefits. . . . . . . . . . . . . . . . . . . . . . . .10
7.7 Disputes. . . . . . . . . . . . . . . . . . . . . . . . . . .10
</TABLE>
ii
<PAGE>
BMC INDUSTRIES, INC.
EXECUTIVE BENEFIT PLAN
ARTICLE 1
DESCRIPTION OF PLAN
1.1 PLAN NAME. The name of the Plan is the "BMC Industries, Inc. Executive
Benefit Plan."
1.2 PLAN PURPOSE. The Plan provides Participants with additional benefits that
would have been provided under the Qualified Plans but for the limitations
imposed by Code sections 401(a)(17) and 415.
1.3 PLAN TYPE. The Plan is an unfunded plan maintained primarily for the
purpose of providing deferred compensation for a select group of management
or highly compensated employees and, as such, is intended to be exempt from
the provisions of Parts 2, 3 and 4 of Subtitle B of Title I of ERISA by
operation of sections 201(2), 301(a)(3) and 401(a)(1) thereof,
respectively. The Plan will be construed and administered in a manner that
is consistent with and gives to such intent.
1.4 PARTICIPATING EMPLOYERS. The Plan applies to each participating employer
that has adopted either or both of the Qualified Plans and has not, at the
time in question, terminated such participation.
1
<PAGE>
ARTICLE 2
DEFINITIONS, CONSTRUCTION AND INTERPRETATION
The definitions and rules of construction and interpretation set forth in this
article apply in construing the Plan unless the context otherwise requires.
2.1 ACCOUNT. "Account" means any or all of the bookkeeping accounts maintained
with respect to a Participant pursuant to Section 4.1, as the context
requires.
2.2 ADMINISTRATOR. "Administrator" means the individual or committee appointed
by the Company to perform administrative duties pursuant to Section 7.1
2.3 BENEFICIARY. "Beneficiary" with respect to a Participant is the person
designated or otherwise determined under the provisions of Section 5.2 of
the Plan. A person designated as or otherwise determined to be a
Beneficiary under the terms of the Plan has no interest in or right under
the Plan until the Participant in question has died. A Beneficiary will
cease to be such on the day on which all benefits to which he, she or it is
entitled under Plan have been distributed.
2.4 BOARD. "Board" means the Company's Board of Directors or any individual or
committee authorized to act on its behalf.
2.5 CODE. "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.6 COMPANY. "Company" means BMC Industries, Inc. or any successor thereto.
2.7 COMPENSATION. "Compensation" with respect to a Participant for a Plan Year
means his or her compensation for the Plan Year within the meaning of the
applicable Qualified Plan determined without regard to the limitation under
Code section 401(a)(17).
2.8 EFFECTIVE DATE. "Effective Date" means January 1, 1993.
2.9 EMPLOYER. "Employer" means the Company and each affiliated organization
with respect to the Company that has adopted one or both of the Qualified
Plans.
2.10 ERISA. "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
2.11 GOVERNING LAW. To the extent that state law is not preempted by ERISA, or
any other law of the United States, all questions pertaining to the
construction, validity, effect and enforcement of the Plan will be
determined in accordance with the internal, substantive laws of the State
of Minnesota without regard to the conflict of law rules of the State of
Minnesota or of any other jurisdiction.
2.12 PARTICIPANT. "Participant" means any participant in one or both Qualified
Plans on or after the Effective Date who has been designated by the
Administrator as a Participant pursuant to Section 3.1. A Participant will
cease to be such on the date on which all benefits to which he or she is
entitled under the terms of the Plan have been distributed in full.
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2.13 PLAN. "Plan" means the BMC Industries, Inc. Executive Benefit Plan, as
from time to time amended or restated.
2.14 QUALIFIED PLANS. "Qualified Plans" means the BMC Industries Employee
Savings Plan and the BMC Industries Employees Profit Sharing Plan,
individually or collectively, as from time to time amended or restated.
2.15 TRUST. "Trust" means any trust or trusts that may be established by the
Company for its convenience from which benefits under the Plan may be paid.
2.16 TRUSTEE. "Trustee" means the one or more individuals, banks or trust
companies who at the relevant time has or have been appointed by the
Company to act as Trustee of the Trust.
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ARTICLE 3
PARTICIPATION
3.1 COMMENCEMENT OF PARTICIPATION. To be eligible to have credits made to his
or her Account pursuant to Section 4.2 or 4.3 for a particular period, an
individual must be
(a) an employee of an Employer who is eligible to participate in a
Qualified Plan for the period.
(b) considered to be a member of a select group of management or
highly compensated employees as determined by the Administrator,
and
(c) selected by the Administrator.
3.2 CONDITION OF PARTICIPATION. Each participant is bound by all of the terms
and conditions of the Plan, including but not limited to the reserved right
of the Company to amend or terminate the Plan, and is required to furnish
to the Administrator such pertinent information, and must execute such
instruments, as the Administrator may require.
3.3 LOSS OF ELIGIBILITY. A Participant who, during a Plan Year, terminates his
or her employment with the Employer or is determined by the Administrator
to have otherwise ceased to be eligible to participate in this Plan, is not
eligible for further credits for the Plan Year pursuant to Section 4.2 or
4.3 other than such credits relating to the period prior to such
termination of employment.
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ARTICLE 4
BENEFITS
4.1 ACCOUNTS. The Administrator will establish and maintain the following
bookkeeping accounts for each Participant -
(a) an "Excess Matching Contribution Account," to evidence amounts
credited to the Participant pursuant to Sections 4.2 and 4.4;
(b) an "Excess Profit Sharing Contribution Account," to evidence
amounts credited to the Participant pursuant to Sections 4.3 and
4.4; and
If more than one Employer makes contributions to a Qualified Plan on a
Participant's behalf, the Administrator may establish and maintain separate
Accounts for the Participant with respect to each Employer.
4.2 EXCESS MATCHING CONTRIBUTION CREDITS. As of a date determined by the
Administrator but not later than the first day of the fifth month after
the end of each plan year under the Qualified Plans, the Administrator will
credit a Participant's Excess Matching Contribution Account with an amount,
if any, equal to the amount of matching contributions that would have been
made on the Participant's behalf for the plan year under the Qualified
Plans if the Participant's elective deferrals for the plan year pursuant to
the Qualified Plans had been made without regard to the limitations imposed
by operation of Code sections 401(a)(17), 401(k)(3), 402(m)(2), 402(g) or
415, minus the amount of total matching contributions actually made on the
Participant's behalf under the Qualified Plans for the plan year.
4.3 EXCESS PROFIT SHARING CONTRIBUTION CREDITS. As of a date determined by the
Administrator but not later than the first day of the fifth month after the
end of each plan year under the Qualified Plans, the Administrator will
credit a Participant's Excess Profit Sharing Contribution Account with an
amount, if any, equal to the amount of the profit sharing contribution that
would have been made on the Participant's behalf for the plan year under
the Qualified Plans but for the limitations of Code sections 401(a)(17) and
415, minus the amount of the profit sharing contribution actually made on
the Participant's behalf under the Qualified Plans for the plan year.
4.4 EARNINGS CREDITS. As of the last day of each calendar quarter,
Participant's Accounts will be credited with earnings at a rate and in a
manner determined by the Administrator.
4.5 VESTING. Each Participant's vested interest in each of his or her Accounts
at any time will be the same as the Participant's vested interest in his or
her corresponding accounts at that time under the Qualified Plans. The
nonvested portion of a Participant's Accounts will be permanently forfeited
at the time the Accounts are distributed pursuant to Article 5, whether or
not his or her accounts under the Qualified Plans have been forfeited or
are subsequently restored.
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ARTICLE 5
DISTRIBUTION
5.1 DISTRIBUTION OF BENEFITS.
(A) DISTRIBUTION TO PARTICIPANT. A Participant's Account balances
will be distributed to the Participant in the form of a lump sum
cash payment on a date determined by the Administrator but not
later than the last day of the first calendar year beginning
after the Participant's "termination of employment", within the
meaning of the BMC Industries Employees Profit Sharing Plan,
unless the Participant is reemployed by an Employer on or before
the date on which the distribution would otherwise be made. The
amount of the Account balances will be determined as of the last
day of the calendar quarter immediately preceding the date of the
distribution.
(B) DISTRIBUTION TO BENEFICIARY. A Participant's Account balances
will be distributed to the Participant's Beneficiary in the form
of a lump sum cash payment on a date determined by the
Administrator but not later than the last day of the first
calendar year beginning after the Administrator's receipt of
notice of the Participant's death. The amount of the Account
balances will be determined as of the last day of the calendar
quarter immediately preceding the date of the distribution.
5.2 BENEFICIARY DESIGNATION.
(A) Each Participant may designate, on forms furnished by the
Administrator, one or more primary Beneficiaries or alternative
Beneficiaries to receive all or a specified part of his or her
Accounts after his or her death, and the Participant may change
or revoke any such designation from time to time. No such
designation, change or revocation is effective unless executed by
the Participant and received by the Administrator during the
Participant's lifetime. No designation of a Beneficiary other
than the Participant's spouse is effective unless the spouse
consents to the designation or the Administrator determines that
the spousal consent cannot be obtained because the spouse cannot
reasonably be located or is legally incapable of consenting. The
consent must be in writing, must acknowledge the effect of the
consent and must be witnessed by a notary public. The consent is
effective only with respect to the Beneficiary or class of
Beneficiaries designated with respect to the spouse who
consented.
(B) If a Participant -
(1) fails to designate a Beneficiary, or
(2) revokes a Beneficiary designation without naming another
Beneficiary, or
(3) designates one or more Beneficiaries none of whom survives
the Participant or exists at the time in question, for all
or any portion of his or her Accounts, the accounts will be
paid to the Participant's surviving spouse or, if the
Participant is not survived by a spouse, to the
representative of the Participant's estate.
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(C) The automatic Beneficiaries specified above and, unless the
designation otherwise specifies, the Beneficiaries designated by
the Participant, become fixed as of the Participant's death so
that, if a Beneficiary survives the Participant but dies before
the receipt of the payment due such Beneficiary, the payment will
be made to the representative of such Beneficiary's estate. Any
designation of a Beneficiary by name that is accompanied by a
description of relationship or only by statement of relationship
to the Participant is effective only to designate the person or
persons standing in such relationship to the Participant at the
Participant's death.
5.3 PAYMENT IN EVENT OF INCAPACITY. If any individual entitled to receive any
payment under the Plan is, in the judgment of the Administrator,
physically, mentally or legally incapable of receiving or acknowledging
receipt of the payment, and legal representative has been appointed for the
individual, the Administrator may (but is not required to) cause the
payment to be made to any one or more of the following as may be chosen by
the Administrator: the Beneficiary (in the case of the incapacity of a
Participant); the institution maintaining the individual, a custodian for
the individual under the Uniform Transfers to Minors Act of any state; or
the individual's spouse, children, parents or other relatives by blood or
marriage. The Administrator is not required to see to the proper
application of any such payment and the payment completely discharges all
claims under the Plan against the Employer, the Plan and Trust to the
extent of the payment.
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ARTICLE 6
SOURCE OF PAYMENTS; NATURE OF INTEREST
6.1 ESTABLISHMENT OF TRUST. The Company may establish a Trust with an
independent corporate trustee and each Employer will comply with the terms
of the Trust. The Employers may from time to time transfer to the Trust
cash, marketable securities or other property acceptable to the Trustee in
accordance with the terms of the Trust.
6.2 SOURCE OF PAYMENTS.
(A) Each employer will pay, from its general assets, the portion of
any benefit pursuant to Article 4 attributable to a Participant's
Accounts with respect to that Employer, and all costs, charges
and expenses relating thereto.
(B) The Trustee will make distributions to Participants and
Beneficiaries from the Trust in satisfaction of an Employer's
obligations under the Plan in accordance with the terms of the
Trust. The Participating Employer is responsible for paying any
benefits attributable to a Participant's Accounts with respect to
that Employer that are not paid by the Trust.
6.3 STATUS OF PLAN. Nothing contained in the Plan or Trust is to be construed
as providing for assets to be held for the benefit of any Participant or
any other person or persons to whom benefits are to be paid pursuant to the
terms of this Plan, the Participant's or other person's only interest under
the Plan being the right to receive the benefits set forth herein. The
Trust is established only for the convenience of the Employers and the
Participants, and no Participant has any interest in the assets of the
Trust prior to distribution of such assets pursuant to the Plan. To the
extent the Participant or any other person acquires a right to receive
benefits under this Plan or the Trust, such right is no greater than the
right to any unsecured general creditor of the Employer.
6.4 NON-ASSIGNABILITY OF BENEFITS. The benefits payable under the plan and the
right to receive future benefits under the Plan may not be anticipated,
alienated, sold, transferred, assigned, pledged, encumbered, or subjected
to any charge or legal process.
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ARTICLE 7
MISCELLANEOUS
7.1 ADMINISTRATION. The Plan will be administered by an individual or
committee selected by the Board. The Administrator has the discretionary
power and authority to issue, modify and revoke such rules as the
Administrator deems advisable, to construe, interpret, apply and enforce
the terms of the Plan and Plan rules and to remedy ambiguities,
inconsistencies, omissions and erroneous Account balances. Whenever the
Plan requires the Administrator to make a determination, the determination
will be made by the Administrator in his, her or its sole discretion and
without regard to whether different determinations have been made in the
past with respect to other persons, whether or not similarly situated. The
Administrator's interpretations, determinations, regulations and
calculations are final and binding on all persons and parties concerned.
7.2 BENEFIT CLAIM PROCEDURE. Within a reasonable time following termination of
a Participant's employment, the Administrator will notify the Participant
or, if he is deceased, his surviving spouse, of the amount of benefits, if
any, payable under the Plan. Not later than 30 days after receipt of such
notice, the Participant or his or her surviving spouse, as the case may be,
may file with the Administrator a written claim objecting to the amount of
benefits payable under the Plan. Not later than 90 days after receipt of
such claim, the Administrator will render a written decision on the claim
to the claimant. If the claim is denied in whole or in part, such decision
will include: the reasons for the denial; a reference to the Plan
provision that is the basis for the denial; a description of any additional
material or information necessary for the claimant to perfect the claim; an
explanation as to why such information or material is necessary; and an
explanation of the Plan's claim procedure. Not later than 60 days after
receiving the Administrator's written decision, the claimant may file with
the Administrator a written request for review of the Administrator's
decision, and the claimant or his or her representative may thereafter
review Plan documents that relate to the claim and submit written comments
to the Administrator. No later than 60 days after receiving such request,
the Administrator will afford the claimant or his or her representative an
opportunity to present his claim in person to the Administrator. Not later
than 60 days after such presentation or, if there is no such presentation,
no later than 60 days after the Administrator's receipt of the request for
review, the Administrator will render a written decision on the claim,
which decision will include the specific reasons for the decision,
including references to specific Plan provisions where appropriate. The
90- and 60-day periods during which the Administrator must respond to the
claimant may be extended by up to an additional 90 or 60 days,
respectively, if special circumstances beyond the Administrator's control
so require and if notice of such extension is given to the claimant prior
to the expiration of the initial 90- or 60-day period.
7.3 AMENDMENT AND TERMINATION. The Company reserves the right to amend or
terminate the plan at any time by way of a written instrument approved or
ratified by the Board and executed in the name of the Company by a duly
authorized officer. No amendment or termination may adversely affect a
benefit to which a Participant or Beneficiary is entitled under the Plan
prior to the date of such amendment or termination; provided, first that to
the extent determined by the Administrator to be necessary to ensure the
continued status of the Plan as an unfunded plan maintained for a select
group of management or highly compensated employees, the Administrator may
cause the Company to make an immediate lump sum distribution to any
Participant of his or her Account balances under the Plan at any time; and,
second, that in conjunction with the termination of the Plan, the Company
may, but is not required to, cause the Account balances of all or any
Participants to be distributed at any time after the effective date of the
termination and prior to the date on which the Account balances would
otherwise be distributed. Any amendment to the Plan
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applies only to Participants who terminate employment after the effective
date of the amendment unless the amendment expressly otherwise provides.
7.4 NO EMPLOYMENT RIGHTS CREATED. Nothing in the Plan gives any Participant a
right to continued employment or limits the right of any Employer to
discharge, transfer, demote, modify terms and conditions of employment or
otherwise deal with the Participant without regard to the effect such
action might have on him or her under the Plan.
7.5 WITHHOLDING AND OFFSETS. Each Employer and, if applicable, the Trustee,
retains the right to withhold from any benefit payment under the Plan, any
and all income, employment, excise and other tax as the Employer or Trustee
may, in its sole discretion, deems necessary and the Employer may offset
against amounts payable to a Participant or Beneficiary under the Plan any
amounts then owing to the Employer by such Participant or Beneficiary.
7.6 OTHER BENEFITS. Neither amounts credited to a Participant's Account
pursuant to Article 4 nor amounts distributed pursuant to Article 5
constitute salary or compensation for the purpose of computing benefits
under any other benefit plan, practice, policy or procedure of any Employer
unless otherwise expressly provided thereunder, to which he or she may be
entitled thereunder.
7.7 DISPUTES. In the event of a dispute over whether the Participant or
Beneficiary is entitled to a benefit under this Plan, the amount, form or
timing of payment of any such benefit or any other provision of this Plan,
the Participant or Beneficiary is responsible for paying any costs he or
she incurs, including attorneys' fees and legal expenses, and the Company
is responsible for paying any costs it incurs, including attorneys' fees
and any legal expenses. Any such dispute may be brought only in a court of
competent jurisdiction in Minnesota.
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BMC INDUSTRIES, INC.
EXECUTIVE BENEFIT PLAN
FIRST DECLARATION OF AMENDMENT
Pursuant to the retained power of amendment contained in Section 7.3 of the BMC
Industries, Inc. Executive Benefit Plan, the undersigned hereby amends the Plan
in the manner described below.
1. Section 1.2 of the Plan is amended to read as follows:
1.2 PLAN PURPOSE. The Plan provides Participants with additional benefits
that would have been provided under the Qualified Plan but for the
limitations imposed by Code sections 401(a)(17) and 415.
2. Section 1.4 of the Plan is amended to read as follows:
1.4 PARTICIPATING EMPLOYERS. The Plan applies to each participating
employer that has adopted the Qualified Plan and has not, at the time
in question, terminated such participation.
3. Section 2.7 of the Plan is amended to read as follows:
2.7 COMPENSATION. "Compensation" with respect to a Participant for a Plan
Year means his or her compensation for the Plan Year for the purpose
in question within the meaning of the Qualified Plan determined
without regard to the limitation under Code section 401(a)(17).
4. Section 2.9 of the Plan is amended to read as follows:
2.9 EMPLOYER. "Employer" means the Company and each affiliated
organization with respect to the Company that has adopted the
Qualified Plan.
5. Section 2.12 of the Plan is amended to read as follows:
2.12 PARTICIPANT. "Participant" means any participant in the Qualified
Plan who has been designated by the Administrator as a Participant
pursuant to Section 3.1. A Participant will cease to be such on the
date on which all benefits to which he or she is entitled under the
terms of the Plan have been distributed in full.
6. Section 2.14 of the Plan is amended to read as follows:
2.14 QUALIFIED PLAN. "Qualified Plan" means the BMC Industries, Inc.
Savings and Profit Sharing Plan, as from time to time amended or
restated.
<PAGE>
7. Section 3.1 of the Plan is amended to read as follows:
3.1 COMMENCEMENT OF PARTICIPATION. To be eligible to have credits made to
his or her Account pursuant to Section 4.2 or 4.3 for a particular
period, an individual must be
(a) an employee of an Employer who is eligible to participate in the
Qualified Plan for the period,
(b) considered to be a member of a select group of management or
highly compensated employees as determined by the Administrator,
and
(c) selected by the Administrator.
8. Section 4.1 of the Plan is amended to read as follows:
4.1 ACCOUNTS. The Administrator will establish and maintain the following
bookkeeping accounts for each Participant -
(a) An "Excess Matching Contribution Account," to evidence amounts
credited to the Participant pursuant to Sections 4.2 and 4.4; and
(b) An "Excess Profit Sharing Contribution Account," to evidence
amounts credited to the Participant pursuant to Sections 4.3 and
4.4.
If more than one Employer makes contributions to the Qualified Plan on
a Participant's behalf, the Administrator may establish and maintain
separate Accounts for the Participant with respect to each Employer.
9. Section 4.2 of the Plan is amended to read as follows:
4.2 EXCESS MATCHING CONTRIBUTION CREDITS. As of a date determined by the
Administrator but not later than the first day of the fifth month
after the end of each plan year under the Qualified Plan, the
Administrator will credit a Participant's Excess Matching Contribution
Account with an amount, if any, equal to the amount of matching
contributions that would have been made on the Participant's behalf
for the plan year under the Qualified Plan if the Participant's
elective deferrals for the plan year pursuant to the Qualified Plan
had been made without regard to the limitations imposed by operation
of Code sections 401(a)(17), 401(k)(3), 402(m)(2), 402(g) or 415,
minus the amount of total matching contributions actually made on the
Participant's behalf under the Qualified Plan for the plan year.
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10. Section 4.3 of the Plan is amended to read as follows:
4.3 EXCESS PROFIT SHARING CONTRIBUTION CREDITS. As of a date determined
by the Administrator but not later than the first day of the fifth
month after the end of each plan year under the Qualified Plan, the
Administrator will credit a Participant's Excess Profit Sharing
Contribution Account with an amount, if any, equal to the amount of
the profit sharing contribution that would have been made on the
Participant's behalf for the plan year under the Qualified Plan but
for the limitations of Code sections 401(a)(17) and 415, minus the
amount of the profit sharing contribution actually made on the
Participant's behalf under the Qualified Plan for the plan year.
11. Section 4.5 of the Plan is amended to read as follows:
4.5 VESTING. Each Participant's vested interest in each of his or her
Accounts at any time will be the same as the Participant's vested
interest in his or her corresponding accounts at that time under the
Qualified Plan. The nonvested portion of a Participant's Accounts
will be permanently forfeited at the time the Accounts are distributed
pursuant to Article 5, whether or not his or her accounts under the
Qualified Plan have then been forfeited or are subsequently restored.
12. Section 5.1(A) of the Plan is amended to read as follows:
(A) DISTRIBUTION TO PARTICIPANT. A Participant's Account balances will be
distributed to the Participant in the form of a lump sum cash payment
on a date determined by the Administrator but not later than the last
day of the first calendar year beginning after the Participant's
"termination of employment," within the meaning of the Qualified Plan,
unless the Participant is reemployed by an Employer on or before the
date on which the distribution would otherwise be made. The amount of
the Account balances will be determined as of the last day of the
calendar quarter immediately preceding the date of the distribution.
The foregoing amendment is effective as of September 1, 1998.
IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed by
its duly authorized officers this 11th day of November, 1998.
BMC INDUSTRIES, INC.
Attest: /s/ Jon A. Dobson By: /s/ Jeffrey J. Hattara
----------------------------- ------------------------------
Secretary Chief Financial Officer
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EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement, effective as of January 1, 1999, is by
and between BMC Industries, Inc., a Minnesota corporation located at One
Meridian Crossings, Suite 850, Minneapolis, Minnesota 55423 (the "COMPANY") and
Paul B. Burke, an individual residing at 2154 Charlton Road, Sunfish Lake,
Minnesota 55118 (the "EXECUTIVE").
A. The Executive has been employed as President and Chief Executive
Officer of the Company and has been serving as Chairman of the Board of
Directors of the Company (the "Board").
B. The parties wish to provide for the continuation of the existing
relationship on the terms hereinafter provided.
In consideration of the actual promises hereinafter set forth, the Company
and the Executive each intending to be legally bound, agree as follows:
1. DEFINITIONS. Capitalized terms used herein shall have the meanings
assigned to them in the Company's 1994 Stock Incentive Plan as in effect on the
effective date hereof (the "PLAN"), unless otherwise specifically defined
herein.
2. EMPLOYMENT.
(a) EMPLOYMENT. Subject to all of the terms and conditions of this
Agreement, the Company agrees to employ the Executive as its President,
Chief Executive Officer, and Chairman of the Board, and the Executive
accepts such employment.
(b) DUTIES. The Executive will perform his duties and obligations
hereunder on a full-time basis and, make the best use of Executive's
energy, knowledge and training in advancing the Company's interests.
Executive shall perform those services for the Company normally associated
and consistent with the titles and positions specified in Section 2(a)
which shall include, but not be limited to, the following:
(i) general and active management of the business strategy
and affairs of the Company, subject to the direction and
supervision of the Board;
(ii) participation with other officers and directors of the
Company in the establishment of policies of the Company;
(iii) presiding at meetings of the Board;
(iv) supervision of the tasks and duties of all of the
officers of the Company; and
(v) supervision of the employment and termination of
employment of all of the executive employees of the Company.
<PAGE>
(c) Notwithstanding anything to the contrary contained in this
Agreement, nothing herein shall preclude Executive from devoting reasonable
periods of time to: (i) serving as a director or member of a committee of
any organization which does not involve a material conflict of interest
with the interests of the Company; (ii) engaging in charitable and
community activities; or (iii) managing his personal investments; PROVIDED,
HOWEVER, that such activities do not materially interfere with the
performance of his duties and responsibilities hereunder.
3. COMPENSATION. In consideration for all services to be rendered to the
Company, the Company agrees to compensate the Executive as follows:
(a) SALARY. The Company agrees to pay Executive a salary at a rate
of Four Hundred Thousand U.S. Dollars (U.S.$400,000) per year, increased
from time to time as the Board, in its sole discretion, may determine (the
"SALARY"). Such Salary will be paid no less often than semi-monthly in
accordance with the standard payroll practices of the Company.
(b) ANNUAL BONUS. In addition to the Salary, Executive will be
entitled to an annual bonus of a percentage of Executive's Deemed Base
Salary (as defined below in Section 3(b)(i)) then in effect (the "ANNUAL
BONUS") in accordance with the Company's management incentive bonus plan
(the "BONUS PLAN") applied in accordance with this Section 3(b). The Bonus
Plan shall be maintained during the term of this Agreement. For purposes
of this Agreement, the Bonus Plan will be operated consistent with past
practice, except that as applied to the Executive under this Agreement:
(i) The Executive's base salary, for purposes of
determining the Executive's Annual Bonus only, will be deemed to
be Four Hundred Twenty Five Thousand U.S. Dollars (U.S.$425,000)
(the "DEEMED BASE SALARY"); provided, that, such Deemed Base
Salary will be increased by any amount by which the Salary is
increased; and
(ii) the Bonus Plan will be structured to provide the
opportunity to yield an Annual Bonus determined by that formula
set forth as Schedule A hereto (as amended each year to reflect
annual changes to the corporate performance target earnings
requirement).
(c) RESTRICTED STOCK AWARD. Executive shall receive a Restricted
Stock Award with a Fair Market Value of Fifty Thousand U.S. Dollars
(U.S.$50,000) on the date of such Award (the "STOCK AWARD"), effective upon
approval thereof by the Board. The Stock Award shall be subject to and
represented by an agreement in form and substance customarily entered into
upon the making of similar Restricted Stock Awards (the "AWARD AGREEMENT"),
which shall contain such restrictions as have customarily applied
previously to Restricted Stock Awards, but such restrictions shall lapse on
December 31, 2000. The parties agree to promptly enter into any such
agreement.
(d) STOCK OPTIONS. Executive will receive a Non-Statutory Stock
Option (the "OPTION") under the Plan to purchase Three Hundred Thousand
(300,000) shares of the
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Company's Common Stock, effective upon approval thereof by the Board. The
Option shall be subject to and represented by an agreement in form and
substance customarily entered into upon the making of Non-Statutory Stock
Options (the "OPTION AGREEMENT"). The parties agree to promptly enter into
any such agreement. Notwithstanding the foregoing, the Option (and
correspondingly, the Option Agreement) will have an exercise price equal to
100% of the Fair Market Value of the Common Stock on the date of the grant
as determined under the Plan and will provide that it becomes fully vested
and exercisable in whole or in part on December 31, 2000, subject to any
customarily applicable forfeiture/vesting provisions contained in the
Option Agreement and Change of Control Agreement (as defined in
Section 4(b)(iv) hereof).
(e) EXTENSION OF STOCK OPTION EXERCISE PERIOD. All Non-Statutory
Stock Options previously granted to Executive shall be amended to provide,
and the Option granted under Section 3(d) shall provide, effective upon
approval by the Board, that the period during which the Executive may
exercise all such Options shall continue for a period of 365 days from the
date of any termination of Executive's employment with the Company, to the
extent such Options by their terms are otherwise exercisable and would not
otherwise expire or lapse, prior to the end of such period. Any agreement
representing such Options shall be revised to reflect such amendment.
(f) REIMBURSEMENT OF BUSINESS EXPENSES. The Company agrees to
reimburse the Executive for all reasonable out-of-pocket business expenses
incurred by the Executive on behalf of the Company, provided that the
Executive appropriately accounts to the Company for all such expenses in
accordance with the rules and regulations of the Internal Revenue Service
under the Internal Revenue Code of 1986, as amended (the "CODE"), if
applicable, and in accordance with the standard policies of the Company
relating to reimbursement of business expenses.
(g) BENEFITS AND VACATION.
(i) The Executive is entitled to participate in all benefit
plans and policies now in effect or hereafter adopted by the
Company to the extent that the terms of such benefit plans permit
the Executive to participate therein, including without
limitation, the Company's: Executive Perk/Flex Plan, physical
examination plan, Stock Option Exercise Loan Program, 401(k)
savings plan, profit sharing plan, non-qualified benefit
equalization plan, Change of Control Agreement (as defined in
Section 4(b)(iv) hereof), and all existing grants or awards to
Executive under the Plan. The Executive's benefits under the
Perk/Flex Plan will be determined using the Deemed Base Salary.
(ii) The Executive is entitled to an amount of paid vacation
as is consistent with and does not otherwise interfere with
Executive's duties hereunder and to all legal holidays observed
by the Company, in each case, in accordance with the Company's
policies as in effect from time-to-time.
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4. TERM AND TERMINATION.
(a) TERM. Subject to earlier termination in accordance with Section
4(b) below, this Agreement will become effective as of January 1, 1999 and
will have an initial term of two (2) years, concluding on December 31,
2000. This Agreement will be automatically renewed for successive one (1)
year periods after such initial term, unless and until terminated by either
party effective as of the end of such initial term, or successive one-year
renewal period, on not less than sixty (60) days' written notice before the
end of such initial term or any such successive one-year renewal period.
(b) TERMINATION.
(i) The Company may terminate this Agreement immediately on
written notice to the Executive "for cause". For purposes of
this Agreement, "for cause" means: (A) an act or acts of personal
dishonesty taken by Executive and intended to result in
substantial personal enrichment of Executive at the expense of
the Company; (B) repeated violations by Executive of his
obligations under Section 2(b) which are demonstrably willful and
deliberate on Executive's part and which are not remedied within
a reasonable period after Executive's receipt of notice of such
violations from the Company or (C) the willful engaging by
Executive in illegal conduct that is materially and demonstrably
injurious to the Company. For purposes of this Section 4(b)(i),
no act, or failure to act, on Executive's part shall be
considered "dishonest," "willful" or "deliberate" unless done, or
omitted to be done, by Executive in bad faith and without
reasonable belief that Executive's action or omission was in, or
not opposed to, the best interest of the Company. Any act, or
failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or based upon the advice of
counsel for the Company shall be conclusively presumed to be
done, or omitted to be done, by Executive in good faith and in
the best interests of the Company;
(ii) This Agreement will terminate upon Executive's death or
upon written notice from the Company in the event of Executive's
"permanent disability" (defined as the unwillingness or inability
of the Executive to perform his duties hereunder because of
incapacity due to physical or mental illness, bodily injury or
disease for a period of (180) consecutive days);
(iii) The parties may at any time terminate this Agreement by
mutual agreement in writing; and
(iv) The Executive may terminate this Agreement as provided
for in the Change of Control Agreement between the Executive and
the Company dated as of May 9, 1991 (the "CHANGE OF CONTROL
AGREEMENT").
4
<PAGE>
The date this Agreement is terminated is hereinafter referred to as the
"TERMINATION DATE."
(c) COMPENSATION UPON TERMINATION.
(i) If the Company terminates this Agreement "for cause"
pursuant to Section 4(b)(i), the Company will be obligated to pay
the Executive only the Salary as may be due and owing through the
Termination Date, and all other non-contingent compensation
earned and accrued up through the Termination Date which will
specifically not include any Annual Bonus, or any part thereof.
Such Salary and other amounts will be paid in one lump sum within
ten (10) business days after the Termination Date. The
Executive's rights to the Stock Award, Option and all other
benefits available to Executive shall be as provided for in the
Plan, and the other agreements, plans and policies governing each
such right and benefit.
(ii) If this Agreement is terminated in accordance with
Section 4(a) or pursuant to Section 4(b)(ii), the Company will be
obligated to pay the Employee the Salary which may be due and
owing through the Termination Date, and all other non-contingent
compensation earned and accrued through the Termination Date.
Such Salary and other amounts will be paid in one lump sum within
ten (10) business days of the Termination Date. In addition, the
Executive shall be entitled to the Annual Bonus, if any, with
respect to the fiscal year in which such termination occurs;
provided, that, in the case of termination pursuant to Section
4(b)(ii), such Annual Bonus shall be pro-rated in an amount equal
to the total amount of the Annual Bonus which would have been
payable to the Executive had this Agreement not so terminated,
multiplied by a fraction, the numerator of which equals the
number of complete or partial calendar months from the beginning
of such fiscal year during which this Agreement terminates
through the Termination Date, and the denominator of which is
twelve (12). Such Annual Bonus (or pro-rata share thereof) shall
be paid as and when contemplated under the Bonus Plan
notwithstanding that the Termination Date may have previously
occurred. The Executive's rights to the Stock Award, Option and
all other benefits available to Executive shall be as provided
for in the Plan, and the other agreements, plans and policies
governing each such right and benefit.
(iii) If the Company terminates the Agreement in accordance
with Section 4(a), the Company will be obligated to pay the
Executive his base salary for one year after the Termination
Date. Such salary shall be paid in twelve (12) equal monthly
installments, with the first such payment due on the last day of
the month containing the Termination Date. This Payment is in
addition to the payments required by Section 4(c)(ii).
5
<PAGE>
(iv) If this Agreement terminates pursuant to Section
4(b)(iii), the Executive shall be entitled to payments as
provided in Section 4(c)(ii) above unless the parties otherwise
mutually agree in writing.
(v) If this Agreement is terminated in accordance with
Section 4(b)(iv), or the Executive's employment with the Company
is terminated under circumstances when the Change of Control
Agreement is applicable, the Executive shall be compensated
solely as provided for in the Change of Control Agreement, and
any conflict between this Agreement and the Change of Control
Agreement shall in such case be governed by the Change of Control
Agreement.
5. NON-COMPETITION; CONFIDENTIALITY.
(a) NON-COMPETITION. Executive agrees that during the term of this
Agreement and for a period of two (2) years following the Termination Date,
Executive will not directly or indirectly, alone or as a partner, officer,
director, shareholder, member, employee, independent contractor or in any
other capacity of or with respect to any other firm or entity, engage in
any commercial activity, in any location where the Company has operations,
sales, customers or otherwise does business, in competition with any part
of the Company's business as conducted during the term of this Agreement.
Such business includes, without limitation, the design, manufacture and
distribution of ophthalmic lenses, aperture masks and precision
photo-etched metal parts, specialty printed circuits, electroformed
components. Notwithstanding the foregoing, the competition restrictions in
this Section 5 shall not apply to any part of the Company's business that
represented less than five percent (5%) of its consolidated revenues during
the most recently completed fiscal year preceding the Termination Date.
For purposes of this Section 5(a) "shareholder" shall not include
beneficial ownership of five percent (5%) or less of the combined voting
power of all issued and outstanding voting securities of a publicly held
corporation whose stock is traded on a major stock exchange or quoted on
NASDAQ.
(b) CONFIDENTIALITY. The Executive agrees not to directly or
indirectly disclose or use at any time, either during or subsequent to his
employment by the Company and any of its subsidiaries or affiliates (which
obligation will survive indefinitely), any technology, trade secrets,
know-how, or other information, knowledge, or data possessed or used by the
Company or to which the Executive gains access in connection with his
employment and which the Company deems confidential or proprietary or which
the Executive has reason to believe is confidential or proprietary, except
as such disclosure or use may be required in connection with his work for
the Company or unless the Executive first secures the written consent of
the Company; provided, that the foregoing shall not prohibit the Executive
only from retaining and using documents and reports of the Company relating
to management, operational or strategic activities of the Company as
formats or templates for the creation of other documents or reports for
parties other than the Company for whom the Executive is then providing
services. The foregoing proviso shall in no event, however, be deemed to
permit the Executive (i) to retain any documentation relating to any
intellectual property or technological information of the
6
<PAGE>
Company or (ii) to disclose or make available to any other party actual (A)
identifying information (including name, position, age or gender) with
respect to any personnel or human resource information, or (B) detailed
information relating to the operational, strategic or financial condition,
plans or performance of the Company.
Subject to the foregoing, upon termination of his employment with the
Company, the Executive will promptly return to the Company all originals
and all copies of all property and assets of the Company created or
obtained by the Executive as a result of or in the course of or in
connection with his employment with the Company which are in the
Executive's possession or control, whether confidential or not. The
obligations under this Section 5 will not apply to any information that is
now or becomes generally available to the public through no fault of
Executive or to Executive's disclosure of any information required by law
or judicial or administrative process.
6. MISCELLANEOUS.
(a) NO ADEQUATE REMEDY. The Executive understands that if the
Executive fails to fulfill Executive's obligations under Section 5 of this
Agreement, the damages to the Company would be very difficult to determine.
Therefore, in addition to any rights or remedies available to the Company
at law, in equity, or by statute, the Executive hereby consents to the
specific enforcement of Section 5 of this Agreement by the Company through
an injunction or restraining order issued by an appropriate court.
(b) CONSENT TO USE OF NAME. The Executive consents to the use of
Executive's name in appropriate Company materials such as, but not limited
to, offering memoranda related to financing activities of the Company.
(c) NO CONFLICTS. Each party represents and warrants to the other
that neither the entering into of this Agreement nor the performance of any
obligations hereunder will conflict with or constitute a breach under any
obligation of such party, as the case may be, under any agreement or
contract to which such party is a party or any other obligation by which
such party is bound.
(d) SUCCESSORS AND ASSIGNS. Subject to provisions of the Change of
Control Agreement, this Agreement is binding on and inures to the benefit
of the Company's successors and assigns. This Agreement is also binding
on, and all rights of Executive hereunder shall inure to the benefit of and
be enforceable by, the Executive's heirs, successors, assigns and legal
representatives. If Executive should die while any amounts would still be
payable to Executive hereunder if Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to Executive's devisee, legatee, or other
designee or, if there be no such designee, to Executive's estate.
Executive may not assign this Agreement, in whole or in any part, without
the prior written consent of the Company.
(e) MODIFICATION. This Agreement may be modified or amended only by
a writing signed by the Company and the Executive.
7
<PAGE>
(f) GOVERNING LAW. The laws of Minnesota will govern the validity,
remedies, interpretation, enforcement, construction, and performance of
this Agreement. Subject to Section 6(g), any legal proceeding related to
this Agreement will be brought in an appropriate Minnesota court or federal
court setting in Minnesota, and the Company and the Executive hereby
consent to the exclusive jurisdiction of that court for this purpose.
(g) DISPUTE RESOLUTION. Except for any proceeding brought pursuant
to Section 6(a) herein, the parties agree that any dispute arising out of
or relating to this Agreement or the formation, breach, termination or
validity thereof (a "DISPUTE"), will be resolved as follows. If the
Dispute cannot be settled through direct discussions, the parties will
first try to settle the Dispute in an amicable manner by mediation under
the Commercial Mediation Rules of the American Arbitration Association,
before resorting to arbitration. Any Dispute that has not been resolved
within sixty (60) days of the initiation of the mediation procedure (the
"MEDIATION DEADLINE") will be settled by binding arbitration by a panel of
three arbitrators in accordance with the commercial arbitration rules of
the American Arbitration Association. The arbitration and mediation
proceedings will be located in Minneapolis, Minnesota. The arbitrators are
not empowered to award damages in excess of compensatory damages and each
party hereby irrevocably waives any damage in excess of compensatory
damages. Judgment upon any arbitration award may be entered into any court
having jurisdiction thereof and the parties' consent to the jurisdiction of
the courts the state in which the arbitration occurred for this purpose.
(h) CONSTRUCTION. Whenever possible, each provision of this Agreement
will be interpreted so that it is valid under the applicable law. If any
provision of this Agreement is to any extent declared invalid by a court of
competent jurisdiction under the applicable law, that provision will remain
effective to the extent not declared invalid. The remainder of this
Agreement also will continue to be valid, and the entire Agreement will
continue to be valid in other jurisdictions.
(i) WAIVERS. No failure or delay by the Company or the Executive in
exercising any right or remedy under this Agreement will waive any
provision of the Agreement. Nor will any single or partial exercise by
either the Company or the Executive of any right or remedy under this
Agreement preclude either of them from otherwise or further exercising
these rights or remedies, or any other rights or remedies granted by any
law or any related document.
(j) ENTIRE AGREEMENT. This Agreement supersedes all previous and
contemporaneous oral negotiations, commitments, writings and understandings
between the parties concerning the matters in this Agreement, including
without limitation any policy or personnel manuals of the Company, except
to the extent this Agreement otherwise provides with respect to the Plan,
the Option Agreement, the Award Agreement, the Change of Control Agreement,
and the benefits described in Section 3(g).
8
<PAGE>
(k) NOTICES. All notices, requests, demands and other communications
required or permitted under this Agreement will be in writing and be
personally delivered or sent by registered first-class mail, postage
prepaid, and will be effective upon delivery, if personally delivered, and
five days after mailing to the addresses stated at the beginning of this
Agreement, if so mailed. These addresses may be changed at any time by
like notice.
(l) COUNTERPARTS. This Agreement may be executed in one (1) or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one (1) and the same instrument.
(m) SURVIVAL. The parties expressly acknowledge and agree that the
provisions of this Agreement which by their express or implied terms extend
beyond the termination of Executive's employment hereunder including,
without limitation, the provisions of Section 4(c) (relating to
compensation) or beyond the termination of this Agreement (including,
without limitation, the provisions of Section 5 (relating to
non-competition and confidential information), shall continue in full force
and effect notwithstanding Executive's termination of employment hereunder
or the termination of this Agreement, respectively.
(n) WITHHOLDING. To the extent required by any applicable law,
including, without limitation, any federal or state income tax or excise
tax law or laws, the Federal Insurance Contributions Act, the Federal
Unemployment Tax Act or any comparable federal, state or local laws, the
Company retains the right to withhold such required portion of any amount
or amounts payable to Executive under this Agreement as the Company (on the
written advice of outside counsel that is disclosed to Executive) deems
necessary.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
BMC INDUSTRIES, INC. EXECUTIVE
By: /s/Jeffrey J. Hattara /s/Paul B. Burke
------------------------- ---------------------------
Jeffrey J. Hattara Paul B. Burke
Title: Vice President Finance and
Administration and CFO
9
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment to Credit Agreement (the "SECOND AMENDMENT")
dated as of December 30, 1998 is by and among BMC Industries Inc., a Minnesota
corporation (the "BORROWER"), Bankers Trust Company, a New York banking
corporation, as administrative agent for the Lenders hereunder (in such capacity
individually, the "AGENT") and as a Lender, NBD Bank as documentation agent and
as a Lender and the several banks and other financial institutions from time to
time party to the Credit Agreement described below (the "LENDERS").
R E C I T A L S:
WHEREAS, the Borrower, the Agents and the Lenders are parties to an
Amended and Restated Credit Agreement dated as of June 25, 1998 (as hereafter
amended, restated, supplemented or otherwise modified, the "CREDIT AGREEMENT"),
pursuant to which the Lenders have made and may hereafter make loans, advances
and other extensions of credit to the Borrower;
WHEREAS, under SECTION 7.11 of the Credit Agreement the Borrower by
December 31, 1998 affirmatively agreed to refinance, amend or otherwise modify
that certain Credit Offer Letter between Buckbee-Mears Europe GmbH and Deutsche
Bank AG (Stuttgart) dated September 30, 1994 such that the facility became an
unsecured facility and Agent received such related releases of security
interests and Liens;
WHEREAS, such refinancing, amendment or modification of such facility
will not have occurred as of December 31, 1998;
WHEREAS, the Borrower has requested that the Agents and the Lenders
amend SECTION 7.11 of the Credit Agreement as set forth herein and the Lenders
and the Agents are agreeable to the same, subject to the terms and conditions
hereof;
WHEREAS, this Second Amendment shall constitute a Loan Document and
these Recitals shall be construed as part of this Second Amendment;
NOW, THEREFORE, in consideration of the foregoing and the agreements,
promises and covenants set forth below, and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. DEFINITIONS. Capitalized terms used but not otherwise defined in
this Second Amendment shall have the meanings ascribed to them in the Credit
Agreement.
2. AMENDMENT TO THE CREDIT AGREEMENT. Subject to the conditions of
this Second Amendment, SECTION 7.11 of the Credit Agreement is hereby amended by
deleting the text "December 31, 1998" therein and inserting in lieu thereof the
text "April 30, 1999".
<PAGE>
3. CONDITIONS PRECEDENT. Notwithstanding any other provision
contained in this Second Amendment or any other document, the effectiveness of
this Second Amendment is expressly conditioned upon the satisfaction of each
matter set forth in this SECTION 4, all in form and substance acceptable to the
Agent in its sole and absolute discretion:
(a) SECOND AMENDMENT. The Agent shall have received a duly executed
copy of this Second Amendment signed by the Borrower, the Agent and the Required
Lenders.
(b) WARRANTIES AND REPRESENTATIONS. All of the warranties and
representations of the Borrower contained in the Credit Agreement and in the
other Loan Documents (including, without limitation, in this Second Amendment)
shall be true and correct in all material respects on and as of the date first
written above (except those representations and warranties made expressly as of
a different date). The Borrower hereby represents and warrants that the
execution, delivery and performance of this Second Amendment and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action and this Second Amendment is a legal, valid
and binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms, except as the enforcement thereof may be subject to
(i) the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium, or similar laws affecting creditors' rights generally and (ii)
general principles of equity (regardless of whether such enforcement is sought
in a proceeding in equity or at law). In furtherance of the foregoing, the
Borrower hereby represents and warrants that as of the date first written above
each of the conditions precedent contained in this SECTION 4 has been fully
satisfied in accordance with the express terms thereof.
(c) NO EVENT OF DEFAULT. Except as expressly waived herein, no Event
of Default shall have occurred and be continuing as of the date first written
above, or, will occur after giving effect to this Second Amendment in accordance
with its terms.
(d) NO LITIGATION. No litigation, investigation, proceeding,
injunction, restraint or other action shall be pending or threatened against the
Borrower or any Affiliate of the Borrower, or any officer, director, or
executive of any thereof, which restrains, prevents or imposes adverse
conditions upon, or which otherwise relates to, the execution, delivery or
performance of this Second Amendment.
4. FURTHER ASSURANCES. The Borrower hereby agrees, at its expense,
to duly execute, acknowledge and deliver to the Agent all agreements,
certificates, instruments, opinions and other documents, and take all such
actions, as the Agent may reasonably request in order to further effectuate the
purposes of this Second Amendment and to carry out the terms hereof.
5. LIMITATION OF SECOND AMENDMENT. The parties hereto agree and
acknowledge that nothing contained in this Second Amendment in any manner or
respect limits or terminates any of the provisions of the Credit Agreement or
any of the other Loan Documents other than as expressly set forth herein and
further agree and acknowledge that the Credit Agreement (as amended hereby) and
each of the other Loan Documents remain and continue in full force and effect
and are hereby ratified and confirmed. Except to the extent expressly set forth
herein, the execution, delivery and effectiveness of this Agreement shall not
operate as a waiver of any rights, power or remedy of the Lenders or the Agent
under the Credit Agreement or any other Loan Document, nor
-2-
<PAGE>
constitute a waiver of any provision of the Credit Agreement or any other
Loan Document. No delay on the part of any Lender or the Agent in exercising
any of their respective rights, remedies, powers and privileges under the
Credit Agreement or any of the Loan Documents or partial or single exercise
thereof, shall constitute a waiver thereof. None of the terms and conditions
of this Second Amendment may be changed, waived, modified or varied in any
manner, whatsoever, except in accordance with SECTION 11.1 of the Credit
Agreement.
6. COSTS, EXPENSES AND TAXES. Pursuant to SECTION 11.4 of the
Credit Agreement, the Borrower agrees to pay on demand all costs and expenses of
the Lenders and the Agent in connection with the preparation, execution and
delivery of this Second Amendment including the reasonable fees and
out-of-pocket expenses of counsel to the Agent with respect thereto.
7. EXECUTION IN COUNTERPARTS. This Second Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
8. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE INTERNAL CONFLICTS OF LAWS PROVISIONS THEREOF.
9. HEADINGS. Section headings in this Second Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Second Amendment for any other purposes.
* * * *
[Signature pages follow]
-3-
<PAGE>
IN WITNESS WHEREOF, this Second Amendment has been duly executed as of
the date first written above.
<TABLE>
<S> <C>
BMC INDUSTRIES INC. NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By: /s/ Jeffrey J. Hattara By: /s/ Scott D. Bjelde
---------------------------- -------------------------
Name: Jeffrey J. Hattara Name: Scott D. Bjelde
Title: VP Finance & Admn and CFO Title: Vice President
BANKERS TRUST COMPANY, in its
individual capacity and as Administrative HARRIS TRUST AND SAVINGS BANK
Agent
By: /s/ Robert R. Telesca By: /s/ Catherine C. Ciolek
----------------------------- --------------------------
Name: Robert R. Telesca Name: Catherine C. Ciolek
Title: Assistant Vice President Title: Vice President
NBD BANK, in its individual capacity and as WACHOVIA BANK, N.A.
Documentation Agent
By: /s/ Marguerite C. Gordy By: /s/ Todd J. Eagle
------------------------------- ---------------------------
Name: Marguerite C. Gordy Name: Todd J. Eagle
Title: Vice President Title: Vice President
UNION BANK OF CALIFORNIA
By: ---------------------------
Name: --------------------------
Title: -------------------------
U.S. BANK NATIONAL ASSOCIATION CREDIT AGRICOLE INDOSUEZ
By: /s/ David Shapiro By: /s/ Jean Yves Klein
---------------------------- ----------------------------
Name: David Shapiro Name: Jean Yves Klein
Title: Assistant Vice President Title: General Manager,
Chicago Branch
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Glenn A. Cue By: /s/ W. Leroy Startz
----------------------------- ----------------------------
Name: Glenn A. Cue Name: W. Leroy Startz
Title: Vice President Title: First Vice President
</TABLE>
<PAGE>
HISTORICAL FINANCIAL SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICS AND RATIOS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Revenues $ 335,138 $ 312,538 $ 280,487 $ 255,355 $ 219,968
Cost of products sold 297,995 244,468 213,007 202,595 181,024
----------------------------------------------------------------
Gross margin 37,143 68,070 67,480 52,760 38,944
Selling and administrative 20,675 16,012 15,033 14,137 12,188
Impairment of long-lived assets 42,800 -- -- -- --
Acquired in-process research and development 9,500 -- -- -- --
----------------------------------------------------------------
Earnings (loss) from continuing operations before interest,
other expense and income taxes (35,832) 52,058 52,447 38,623 26,756
Interest income (expense), net (13,374) (1,065) (280) 467 (2,369)
Other income (expense) 522 209 236 (146) (57)
Income tax (benefit) expense (18,049) 15,481 17,302 14,397 9,326
----------------------------------------------------------------
Earnings (loss) from continuing operations (30,635) 35,721 35,101 24,547 15,004
Provision for loss related to discontinued operation,
net of tax -- -- -- -- (839)
----------------------------------------------------------------
Net earnings (loss) $ (30,635) $ 35,721 $ 35,101 $ 24,547 $ 14,165
----------------------------------------------------------------
BASIC EARNINGS (LOSS) PER SHARE
Number of shares included in per share computation 27,014 27,583 27,268 26,896 25,023
Earnings (loss) from continuing operations $ (1.13) $ 1.30 $ 1.29 $ 0.91 $ 0.60
Loss from discontinued operation -- -- -- -- (0.03)
----------------------------------------------------------------
Basic earnings (loss) per share $ (1.13) $ 1.30 $ 1.29 $ 0.91 $ 0.57
----------------------------------------------------------------
DILUTED EARNINGS (LOSS) PER SHARE
Number of shares included in per share computation 27,014 28,530 28,363 28,234 27,335
Earnings (loss) from continuing operations $ (1.13) $ 1.25 $ 1.24 $ 0.87 $ 0.55
Loss from discontinued operation -- -- -- -- (0.03)
----------------------------------------------------------------
Diluted earnings (loss) per share $ (1.13) $ 1.25 $ 1.24 $ 0.87 $ 0.52
----------------------------------------------------------------
CASH FLOW
Cash dividends per share $ 0.06 $ 0.06 $ 0.0525 $ 0.0425 $ 0.02
Depreciation and amortization expense 21,014 13,349 10,171 8,290 8,250
Net cash provided by operating activities 26,948 14,667 20,786 45,261 36,680
Capital expenditures 21,427 75,110 54,662 39,196 13,537
----------------------------------------------------------------
FINANCIAL POSITION
Working capital $ 94,971 $ 74,914 $ 41,354 $ 32,730 $ 38,769
Property, plant and equipment, net 162,594 182,382 123,845 81,409 49,858
Total assets 399,465 319,407 232,969 182,332 138,686
Total debt 189,195 74,565 17,989 47 66
Stockholders' equity 133,257 178,752 144,108 108,466 81,788
----------------------------------------------------------------
STATISTICS AND RATIOS
Current ratio 2.7 2.6 1.8 1.6 2.0
Total debt to equity ratio 1.4 0.4 0.1 0.0 0.0
Earnings (loss) from continuing operations before interest,
other expense and income taxes, as a percentage
of revenues (10.7)% 16.7% 18.7% 15.1% 12.2%
Return on average equity (19.6)% 22.1% 27.8% 25.8% 20.1%
Book value per share $ 4.90 $ 6.43 $ 5.26 $ 4.01 $ 3.05
----------------------------------------------------------------
</TABLE>
THE NUMBER OF SHARES AND PER SHARE AMOUNTS HAVE BEEN ADJUSTED FOR TWO-FOR-ONE
STOCK SPLITS IN 1995 AND 1994.
10 / BMC INDUSTRIES, INC.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
SUMMARY
BMC Industries, Inc., through its Vision-Ease subsidiary, is a leading
producer of polycarbonate, glass and plastic eyewear lenses. The Company is also
one of the world's largest manufacturers of aperture masks for color picture
tubes used in televisions and computer monitors and a leading producer of
precision photo-etched metal and electroformed parts. The Company segments its
business into two business units, Optical Products and Precision Imaged Products
(PIP).
Net sales of $335.1 million for 1998 represent a 7% increase over the $312.5
million in 1997. The growth during 1998 was provided by the Optical Products
group, primarily through the acquisition in May 1998 of Orcolite, a
polycarbonate and plastic ophthalmic lens manufacturer. This growth was
partially offset by lower revenue from the Precision Imaged Products group.
During 1998, the Company incurred charges within its Precision Imaged
Products group for the write-down of the value of certain PIP fixed assets
($42.8 million pre-tax, $26.7 million after-tax), for the extended shutdown of
three mask production lines at the Company's Cortland, New York, plant,
additional aperture mask inventory charges and for moving certain aperture mask
inspection operations. Within the Optical Products group, the Company also
incurred a charge for acquired in-process research and development (IPR&D)
purchased as part of the acquisition of Orcolite ($9.5 million pre-tax, $6.0
million after-tax).
Net loss and diluted loss per share for 1998 were ($30.6) million and
($1.13), respectively, compared to net earnings and diluted earnings per share
of $35.7 million and $1.25, respectively, for 1997.
RESULTS OF OPERATIONS
The following discussion and analysis examines the operating results of the
Company's two business segments. As used herein, "operating profit" refers to
operating profit before charges for the impairment of long-lived assets and
acquired IPR&D, corporate allocations, corporate expense and interest, as shown
in Note 12 to the Consolidated Financial Statements - Segment Information.
OPTICAL PRODUCTS
REVENUES AND OPERATING PROFIT
COMPARISON OF 1998 AND 1997. Revenues of the Optical Products group were
$123.1 million for 1998, an increase of $29.5 million or 32% from 1997. The
increase was primarily due to the acquisition of Orcolite in May 1998. Sales of
high-end products (polycarbonate, progressive, high-index and polarizing sun
lenses) increased 81% from 1997 to 1998 and accounted for 53% of total Optical
Products group revenue in 1998 compared to 39% in 1997.
On a pro forma basis, Optical Products group revenues, which for 1998
include sales by Orcolite subsequent to the date of acquisition, increased 8%
over the combined Vision-Ease and Orcolite 1997 revenues for the same period.
Sales of high-end products, on a pro forma basis, increased 25% over the
combined Vision-Ease and Orcolite 1997 revenues for the same period and
accounted for 53% of total Optical Products group revenue in 1998 compared to
46% in 1997.
Sales of mid-range and commodity plastic products increased 33%, due
primarily to the acquisition of Orcolite, and increased 8% on a pro forma basis.
Glass product sales declined 13% from 1997 to 1998 due to continued contraction
in the demand for glass products.
Operating profit of the Optical Products group (excluding the charge related
to acquired IPR&D) was $19.7 million for 1998, an increase of $4.8 million or
32% over 1997. The rate of operating profit expressed as a percentage of total
revenues was 16% for 1998 and 1997. 1998 operating profit growth was in line
with revenue growth and reflects higher earnings resulting from the acquisition
of Orcolite and the increase in sales of high-end products, offset by weakening
earnings on glass products, heightened competition in the plastic product
segment, new lens product development and new polycarbonate product promotions.
In connection with the purchase of Orcolite, and in accordance with
generally accepted accounting principles, the Company allocated $9.5 million of
the $101.0 million purchase price to IPR&D. This amount represents the
independently appraised value based on risk-adjusted cash flows related to the
IPR&D projects and was expensed as of the acquisition date. As of the date of
the acquisition,
BMC INDUSTRIES, INC. / 11
<PAGE>
the development of these projects had not reached technological feasibility,
and these projects had no alternative future uses.
COMPARISON OF 1997 AND 1996. Revenues of the Optical Products group were
$93.5 million for 1997, an increase of $5.6 million or 6% from those for 1996.
The increase was primarily due to a 26% increase in sales of high-end products
(polycarbonate, progressive, high-index and polarizing sun lenses) as consumer
preferences for advanced materials, designs and features increased. Sales of
mid-range hard-resin plastic products showed more modest gains as competition
continued to grow in this segment of the market and were impacted by
Vision-Ease's transition to a new supply agreement with a Southeast Asian lens
manufacturer. Glass product sales declined because of contraction of the
worldwide market for glass lenses. Overall glass earnings are expected to
decline in the future due to continued contraction in the demand for glass
products. To partially offset this decline, the Company entered into a
majority-owned joint venture in 1997 with a glass lens manufacturer located in
Southeast Asia to establish an alternate, low-cost source for glass lenses.
Operating profit of the Optical Products group was $14.9 million for 1997,
an increase of $0.5 million or 4% over 1996. The rate of operating profit
expressed as a percentage of total revenues was 16% for 1997 and 1996. Operating
profit growth in 1997 lagged the sales growth due to a number of factors,
including the weakening of earnings on glass products, new lens product
development, new polycarbonate product promotions, duplicate facility costs
associated with polycarbonate manufacturing and costs associated with closing
the Ft. Lauderdale, Florida, facility and transitioning production to St. Cloud,
Minnesota. The new polycarbonate manufacturing, centralized distribution and
research and development facility was completed in the third quarter of 1997,
but a full transfer of operations was not completed until 1998 to ensure minimal
interruption of polycarbonate lens manufacturing.
PRECISION IMAGED PRODUCTS
The PIP unit is comprised of two businesses, Mask Operations and
Buckbee-Mears St. Paul (BMSP), which share process manufacturing technology and
one manufacturing facility.
REVENUES AND OPERATING PROFIT
COMPARISON OF 1998 AND 1997. Revenues of the Precision Imaged Products group
were $212.1 million for 1998, a decrease of $6.9 million or 3% from 1997. The
decline was primarily attributable to decreased sales of invar television masks
which were offset partially by increased sales of computer monitor masks. Sales
of invar television masks were down 40% compared to total year 1997 sales. Total
year 1998 computer monitor mask sales were $36.7 million, an increase of 79%
over 1997. Over 75% of the computer monitor masks sold in 1998 were produced at
the Company's Mullheim, Germany, plant. Sales of large (25-29 inches) AK steel
television masks were up 12% while jumbo (30 inches and larger) television mask
sales were flat compared to prior year. BMSP, which accounts for less than 15%
of total PIP revenues, posted record sales for 1998.
Operating profit of the PIP group (excluding the charge for impairment of
long-lived assets) was $2.0 million for 1998, a decrease of $39.5 million or 95%
from 1997. The rate of operating profit expressed as a percentage of revenues
was 1% for 1998 compared to 19% for 1997. The decline in operating profit is
primarily due to the decline in invar television mask revenue; pricing pressures
in the mask business, particularly pricing for monitor masks (and alleged
below-cost pricing of certain AK steel television masks by Japanese and South
Korean mask manufacturers); costs associated with the extended shutdown of two
entertainment and one monitor mask manufacturing lines at the Company's Cortland
plant; mask inventory charges and costs associated with moving certain mask
inspection operations. In addition, significant production ramp-up and product
qualification costs were incurred during the first half of 1998 related to the
monitor mask line at the Cortland plant prior to the shutdown of this line for
all of the second half of 1998. The operating profit reductions as described
above were offset slightly by record earnings posted by Buckbee-Mears St. Paul
for the year.
During the third quarter of 1998, in response to difficult market
conditions, the Company shut down three manufacturing lines (two entertainment
mask and one computer monitor mask) at the Company's Cortland facility for an
extended period of time. One entertainment mask line resumed operation in the
fourth quarter 1998. The Company restarted the computer monitor mask line in
late January 1999. The remaining entertainment mask line continues to be shut
down.
The impairment of long-lived assets write-down of $42.8 million (pre-tax)
reflects the diminished value of
12 / BMC INDUSTRIES, INC.
<PAGE>
certain PIP operating fixed assets, primarily those related to the production of
computer monitor masks. In accordance with Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets,"
the Company recorded a charge of $26.7 million after-tax ($42.8 million pre-tax)
during the second quarter of 1998 to write-down these fixed assets. After
careful assessment of various factors relevant to these assets, including
significant declines in sales prices within the computer monitor mask market,
management determined it was appropriate to write-down the value of these assets
to estimated fair value based on discounted estimated future cash flows in
accordance with SFAS No. 121.
COMPARISON OF 1997 TO 1996. Revenues of the Precision Imaged Products group
were $219.0 million for 1997, an increase of $26.5 million or 14% from those for
1996. The improvement was primarily attributable to increased sales of computer
monitor masks. Total year 1997 computer monitor mask sales exceeded $20.0
million, an increase of over $15.0 million compared to 1996. Almost all of the
computer monitor masks in 1997 were produced at the Mullheim plant. Sales of
large (25-29 inches) television masks were up 16%, while sales of invar
television masks were flat compared to total year 1996 sales. Jumbo (30 inches
and larger) television mask sales were 16% below the prior year, which is a
difficult comparison following a 58% increase in jumbo mask sales over 1995.
Sales were reduced almost $11 million in 1997 due to the strengthening of the
U.S. dollar versus the German mark. Buckbee-Mears St. Paul posted record total
year 1997 sales while generating its first sales of lead frames for
semiconductor packages in the fourth quarter of 1997.
Operating profit of the Precision Imaged Products group was $41.5 million
for 1997, a decrease of $1.6 million or 4% from that realized in 1996. The rate
of operating profit expressed as a percentage of revenues was 19% for 1997,
compared to 22% for 1996. The decline in operating profit was primarily due to
the start-up and de-bugging of the new Cortland monitor mask line. The Company
dedicated a large portion of production time to the qualification of parts for
customers. In addition, resources were allocated to the new television mask line
in Cortland, which continued to ramp up in 1997, including successfully
qualifying parts in a multiple-up configuration. Additional contributing factors
to the lower operating profits were slower growth in higher-priced television
masks and downward pressure on mask prices. These operating profit reductions
were offset partially by the record earnings posted by BMSP for the year, as a
result of product mix and manufacturing improvements, and profit recognized upon
completion of a long-term mask equipment and technology contract.
SELLING EXPENSES
Selling expenses were $15.5 million, $11.7 million and $10.0 million or
4.6%, 3.7% and 3.6% of revenues for 1998, 1997 and 1996, respectively. The
increase in 1998 was primarily due to incremental costs associated with the
Orcolite acquisition, expanded sales and marketing efforts and costs related to
the launch of the Optical Products group's new polycarbonate progressive lens,
Outlook-TM-. The increase in 1997 over 1996 was primarily due to incremental
costs to launch the Optical Products group's premium line of polycarbonate
lenses bearing the Tegra-TM- trade name.
ADMINISTRATIVE EXPENSES
Administrative expenses were $5.2 million, $4.3 million and $5.0 million or
1.5%, 1.4% and 1.8% of revenues for 1998, 1997 and 1996, respectively.
Administrative expenses as a percent of sales were essentially flat from 1997 to
1998 and decreased from 1996 to 1997, primarily due to a reduction in employee
performance-based incentive benefits tied to the Company's earnings.
INTEREST EXPENSE (INCOME)
Interest expense was $13.5 million, $1.3 million and $0.5 million for 1998,
1997 and 1996, respectively. Interest income was $0.2 million, $0.2 million and
$0.3 million for 1998, 1997 and 1996, respectively. Interest expense for 1998
was higher than in 1997 due to increased debt levels to fund the Orcolite
acquisition in May 1998, repurchase of outstanding stock in January 1998, and to
fund the mask expansion in 1997. Interest expense for 1997 was higher than in
1996 because of increased debt levels to fund expansion projects. In 1998, 1997
and 1996, interest costs of $0.7 million, $2.6 million and $0.3 million,
respectively, were capitalized in connection with the Company's expansion
projects.
INCOME TAXES
Expressed as a percentage of earnings (loss) before income taxes, the
Company's effective tax rate was (37%), 30% and 33% in 1998, 1997 and 1996,
respectively. The
BMC INDUSTRIES, INC. / 13
<PAGE>
1998 tax rate was higher than the 1997 tax rate due principally to the reduction
in the valuation reserve in 1997 not recurring in 1998. The 1997 tax rate was
lower than 1996 due principally to a larger reduction in the valuation reserve
in 1997 and a reduction in state income taxes.
SEASONALITY
The Company's earnings are generally lower in the first and third quarters
due to maintenance shutdowns at the Company's mask production facilities.
Maintenance shutdowns also occur at the Company's lens manufacturing facilities
in the third quarter. Also, the seasonality of end products in several markets
(televisions, computer monitors and ophthalmic lenses) affects the Company's
annual earnings pattern.
ACQUISITIONS
On May 15, 1998, the Company, through a wholly owned subsidiary, acquired
Orcolite, a division of Monsanto Company, which produces polycarbonate and
plastic ophthalmic lenses, for $101.0 million in cash. See Note 2 to the
Consolidated Financial Statements - Business Acquisition for additional
information regarding the acquisition.
DIVIDENDS
In 1998, the Company continued the payment of cash dividends to
shareholders. Cash dividends of one and one-half cents per share were declared
in each quarter of 1998. The Company currently expects to continue dividend
payments in 1999.
SHARE REPURCHASE PLAN
In January 1998, the Company repurchased one million shares of its common
stock as authorized by the Board of Directors on April 7, 1997. The repurchase
occurred between January 6, 1998 and January 13, 1998 on the open market for
$16.6 million, an average price of $16.64 per share.
ENVIRONMENTAL
The Company's operations are subject to federal, state, local and foreign
environmental laws and regulations. Under the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended (CERCLA or
Superfund), the Company has been designated as a potentially responsible party
(PRP) by the United States Environmental Protection Agency with respect to
certain waste sites with which the Company may have had direct or indirect
involvement. Similar designations have been made by some state environmental
agencies under applicable state superfund laws. Such designations are made
regardless of the extent of the Company's involvement. Such designations have
been made by the filing of a complaint, the issuance of an administrative
directive or order, or the issuance of a notice or demand letter. These actions
are in various stages of administrative or judicial proceedings. They include
demands for recovery of past governmental costs and/or for future investigative
or remedial actions. In many cases, the dollar amount of site costs or the
Company's portion of site costs is not specified. In most cases, however, the
Company has been designated a de minimis party and claims have been asserted
against a number of other entities for the same recovery or other relief as was
asserted against the Company. The Company is currently participating in remedial
action at eight sites under federal, state and local laws.
In connection with one of the investigations described above, the initial
PRPs for a site in Cortland brought suit against the Company and 16 other
entities for allegedly depositing waste at that site. During the third quarter
of 1998, the Company signed a Consent Decree among the United States and other
PRPs for remediation of the site. Upon U.S. District Court approval, the Company
believes that the Consent Decree will result in the dismissal of the initial
PRP's lawsuit and that the Company will not be held responsible for past PRP
costs.
To the extent possible with the amount of information available at this
time, the Company has evaluated its responsibility for costs and related
liability with respect to the above sites, has recorded reserves for such
liability in accordance with generally accepted accounting principles, and is of
the opinion that the Company's liability with respect to these sites should not
have a material adverse effect on the financial position or the results of
operations of the Company. In arriving at this conclusion, the Company has
considered, among other things, the payments that have been made with respect to
the sites in the past; the factors, such as volume and relative toxicity,
ordinarily applied to allocated defense and remedial costs at such sites; the
probable costs to be paid by the other potentially responsible parties; total
projected remedial costs for a site, if known; existing technology; and the
currently enacted laws and regulations. A portion of the costs and related
14 / BMC INDUSTRIES, INC.
<PAGE>
liability for these sites has been or will be covered by available insurance.
FINANCIAL POSITION AND LIQUIDITY
Working capital was $95.0 million and the current ratio was 2.7 at December
31, 1998, compared to $74.9 million and a current ratio of 2.6 at December 31,
1997. Accounts receivable balances increased $9.3 million compared to 1997 due
primarily to the Orcolite acquisition. Inventory balances increased $12.7
million compared to 1997. The Optical Products group's inventory levels
increased due to the Orcolite acquisition and to support new product
introductions for Tegra-TM- finished single-vision polycarbonate and Outlook-TM-
progressive polycarbonate. The Precision Imaged Products group's inventory
levels declined due to the extended shutdown of the three mask production lines.
Accounts payable and other liabilities increased primarily due to the Orcolite
acquisition.
At December 31, 1998, the Company had $189.2 million in debt and the ratio
of total debt to total equity was 1.4. At December 31, 1997, the Company had
$74.6 million in debt and the ratio of total debt to total equity was 0.4. The
Company incurred incremental debt primarily to fund the acquisition of Orcolite
in May 1998 and the repurchase of shares of the Company's outstanding stock in
January 1998.
The Company generated $26.9 million of cash flow from operating activities
and $94.1 million from financing activities in 1998. The cash generated from
operating and financing activities was used primarily for the cash acquisition
of Orcolite for $101.0 million and property, plant and equipment additions
totaling $21.4 million. The Company generated $14.7 million of cash flow from
operating activities and $62.1 million from financing activities, primarily
through incremental debt, in 1997. The cash generated from operating and
financing activities was used primarily for property, plant and equipment
additions totaling $75.1 million. The increase in the Company's capital spending
in 1997 was primarily due to $49.4 million spent on the two-line expansion of
the Company's mask manufacturing facility in Cortland. The Company generated
$20.8 million of cash flow from operating activities and $20.6 million from
financing activities in 1996 which were used principally for property, plant and
equipment additions.
Capital spending in 1999 is planned to total $20-25 million. It is currently
anticipated that 1999 capital expenditures will be financed primarily with funds
from operations.
As of December 31, 1998, the Company had a $250 million domestic secured
credit facility with a syndicate of banks. There was $178.7 million outstanding
under this facility at December 31, 1998. The Company's German subsidiary
maintains short-term and long-term credit facilities totaling $24.0 million.
There was $7.1 million outstanding under these facilities at December 31, 1998.
The Company currently believes that the combination of present capital
resources, internally generated funds and unused financing sources will be
adequate to meet the Company's financing requirements for 1999. See Note 7 to
the Consolidated Financial Statements - Debt for additional discussion of
available credit and covenant compliance under the existing credit facility.
MARKET RISK
FOREIGN CURRENCY
A portion of the Company's operations consists of manufacturing and sales
activities in foreign jurisdictions. The Company manufactures its products in
the United States, Germany, Hungary and Indonesia and purchases products from
Asian, as well as other, suppliers. The Company sells its products in the United
States and into various foreign markets. The Company's sales are typically
denominated in either the U.S. dollar or the German mark (DM/Euro). The
Company's Mask Operations also have an indirect exposure to the Japanese yen and
the Korean won because its most significant competitors are Japanese and Korean.
As a result, the Company's financial results could be significantly affected by
factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. In addition, sales of products overseas are
affected by the value of the U.S. dollar relative to other currencies. Long-term
strengthening of the U.S. dollar may have an adverse effect on these sales and
competitive conditions in the Company's markets may limit the Company's ability
to increase product pricing in times of adverse currency movements.
To manage the volatility relating to these exposures, the Company enters
into various derivative instruments, including forward foreign exchange
contracts and cross-currency swaps. The cross-currency swaps are accounted for
under mark-to-market accounting.
BMC INDUSTRIES, INC. / 15
<PAGE>
At December 31, 1998, the Company did not have any forward foreign exchange
contracts. At December 31, 1997, the Company had approximately $3.6 million of
outstanding foreign currency exchange options to exchange U.S. dollars for
German marks at a set exchange rate.
In October and November 1998, the Company entered into cross-currency swaps
which provided for the Company to swap a total of $20.0 million of notional debt
for the equivalent amount of Japanese yen-denominated debt. Under these swaps,
the Company also effectively swapped a U.S. dollar-based interest rate of 5.5%
for a Japanese yen-based interest rate of 1.1%. These swap contracts were
settled in November 1998, resulting in a pre-tax gain of $0.9 million. A
hypothetical 10% adverse effect on the foreign exchange rate would have resulted
in a pre-tax loss of $2.2 million related to these $20.0 million in swaps. A
hypothetical 100 basis point adverse effect on interest rates would have
resulted in an additional loss of $1.0 million.
In January 1999, the Company entered into a cross-~currency swap which
provided for the Company to swap a total of $10.0 million of notional debt for
the equivalent amount of Japanese yen-denominated debt. Under this swap, the
Company also effectively swapped a U.S. dollar-based interest rate of 5.10% for
a Japanese yen-based interest rate of 1.05%. A hypothetical 10% adverse effect
on the foreign exchange rate would result in a pre-tax loss of $1.3 million
related to this $10.0 million swap. A hypothetical 100 basis point adverse
effect on interest rates would result in an additional loss of $0.5 million.
The Company experiences foreign currency gains and losses, which are
reflected on the Company's Statements of Operations, due to the strengthening
and weakening of the U.S. dollar against the currencies of the Company's foreign
subsidiaries and the resulting effect on the valuation of the intercompany and
other accounts. The net exchange gain or loss arising from this was not material
in 1998 or 1997. The Company anticipates that it will continue to incur exchange
gains and losses from foreign operations in the future.
The Company's net investment in foreign subsidiaries was $26.2 million and
$27.9 million at December 31, 1998 and 1997, respectively, translated into U.S.
dollars at year-end exchange rates. The potential loss in value resulting from a
hypothetical 10% change in foreign currency exchange rates is $2.5 million and
$2.4 million in 1998 and 1997, respectively.
In the first half of 1998, the U.S. dollar strengthened against the DM and
in the second half of 1998, the U.S. dollar weakened against the DM. A weaker
dollar generally has a positive impact on overseas results because foreign
currency-denominated earnings translate into more U.S. dollars; a stronger
dollar generally has a negative translation effect. For 1998, the effect of the
change in exchange rates was offsetting and, therefore, did not have a material
impact on sales or net earnings. During 1997, the generally stronger U.S. dollar
decreased net sales by $11.0 million and had an immaterial impact on net
earnings.
INTEREST
Substantially all of the Company's debt and associated interest expense is
sensitive to changes in the level of interest rates. To mitigate the impact of
fluctuations in interest rates, the Company principally enters into interest
rate swaps to hedge the exposure of a portion of its floating-rate debt. The
Company's primary interest rate exposure is U.S., and to a lesser extent DM/Euro
and yen-based interest rates.
In March 1997, the Company entered into an interest rate swap agreement that
allows the Company to swap a variable interest rate for a fixed interest rate of
6.37% on $15.0 million of notional debt during the period ending March 1999. In
August 1998, the Company entered into multiple interest rate swap agreements for
a total of $100.0 million of notional debt which provide for the Company to swap
a variable interest rate for fixed interest rates ranging from 7.12% to 7.14%.
These swaps expire at various dates ranging from July 1999 to August 2000. A
hypothetical 100 basis point increase in interest rates would result in a $0.7
million and $0.6 million adverse impact on interest expense in 1998 and 1997,
respectively.
YEAR 2000 COMPLIANCE
The Company has computer applications at the corporate level and at each of
its operating divisions that require or have required modifications made
necessary by the upcoming year 2000. The year 2000 (Y2K) issue is the result of
computer programs using a two-digit format, as opposed to four digits, to
indicate the year. The two-digit programs will be unable to correctly interpret
dates beginning in the year 2000 and, as a result, could cause computer system
failures or miscalculations. These failures or miscalculations could cause
significant disruptions of operations, including among other things, an
inability to process trans-
16 / BMC INDUSTRIES, INC.
<PAGE>
actions or engage in normal business activities. If appropriate modifications
are not made, or are not completed in a timely manner, the Y2K issue could have
a material adverse impact on the operations of the Company.
The Company has been addressing the Y2K issue using essentially the
following four-phase approach:
-Phase I - Identification of all significant computer systems within the
Company with exposure to Y2K issues;
-Phase II - For each system, assessment of Y2K issue(s) and required
remediation;
-Phase III - Remediation and testing of systems to be Y2K compliant;
-Phase IV - Assessment of Y2K preparedness of significant third parties.
Phase I was formally completed and summarized on a Company-wide basis in
early 1998. Phase II is essentially completed for all information technology
(IT) systems and is in process and estimated to be completed in the second
quarter of 1999 for all non-IT systems. Non-IT systems are generally embedded
technology, such as micro-controllers. Phase III is in various stages of
completion depending on the systems involved. For IT systems, the most
significant efforts of this phase currently involve the accelerated replacement
of non-compliant IT systems within the Mask Operations group and the remediation
and testing of important mainframe applications and operating systems within the
Optical Products group. Y2K-compliant integrated IT systems from SAP are
currently scheduled for implementation in the Mask Operations group in various
phases beginning in early 1999 and continuing through the third quarter of 1999.
Y2K remediation and testing within the Optical Products group is currently
estimated to be completed by the third quarter of 1999. For non-IT systems,
Phase III is currently scheduled to be completed in conjunction with Phase II by
mid-1999. For Phase IV, the Company is in the process of identifying and
assessing the Y2K preparedness of significant third parties, including key
vendors and service providers, and estimates that this phase will be ongoing
during the remainder of 1999.
The Company currently estimates that it will cost $3-4 million using both
internal and external resources to address the Y2K issue as discussed above,
including the cost of replacing the IT systems within the Mask Operations group.
Through December 31, 1998, the Company had spent approximately $1 million of
this total estimate. Expenditures related to Y2K preparedness are expected to be
funded by cash flow from operations and are not currently expected to impact
other operating or investment plans.
The Company's current most reasonably likely worst case Y2K scenario is the
potential inability to obtain raw materials from suppliers in a timely manner or
that modification work will not proceed on schedule, causing some increase to
the total cost of achieving Y2K compliance. The impact on the Company's results
of operations if the Company or its suppliers or customers are not fully Y2K
compliant is not reasonably determinable. Since the Company is depending on its
ability to execute modification plans and its vendors to continue material
supply without interruption, there can be no assurance that unforeseen
difficulties will not arise for the Company or its customers and that related
costs will not thereby be incurred.
Management believes it has planned appropriately to resolve the Y2K issue
with respect to all material elements under the Company's direct control. A
number of significant risks do exist, however, including the potential inability
of the Company to obtain (or retain) the proper internal and external resources
to fully address all Y2K exposures in the timeframes required and at the cost
estimated, as well as the risk that key suppliers, customers or other
significant third parties, including those in utilities, communications,
transportation, banking and government are not prepared for the year 2000.
The Company has not yet established a contingency plan relative to the Y2K
issue but currently anticipates establishing such a plan later in 1999.
NEW ACCOUNTING STANDARDS
SFAS No. 133 "Accounting for Derivatives and Similar Financial Instruments
and for Hedging Activities" is effective for fiscal years beginning after June
15, 1999. See Note 1 to the Consolidated Financial Statements - Summary of
Significant Accounting Policies for additional information regarding new
accounting standards.
EURO CURRENCY CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union,
including Germany, adopted the "euro" as their common legal currency. The euro
trades on currency exchanges and is available for non-cash transactions. From
January 1, 1999 through January 1, 2002, each of the
BMC INDUSTRIES, INC. / 17
<PAGE>
participating countries is scheduled to maintain its national ("legacy")
currency as legal tender for goods and services. Beginning January 1, 2002, new
euro-denominated bills and coins will be issued, and legacy currencies will be
withdrawn from circulation no later than July 1, 2002. The Company's foreign
operating subsidiaries that will be affected by the euro conversion have
established plans to address the business issues raised, including the
competitive impact of cross-border price transparency. It is not anticipated
that there will be any near-term business ramifications; however, the long-term
implications, including any changes or modifications that will need to be made
to business and financial strategies, are still being reviewed. From an
accounting, treasury and computer system standpoint, the impact from the euro
currency conversion is not expected to have a material impact on the financial
position or results of operations of the Company.
CAUTIONARY STATEMENTS
Certain statements included in this Discussion and Analysis of Financial
Condition and Results of Operations by the Company or its representatives, as
well as other communications, including its filings with the Securities and
Exchange Commission, reports to shareholders, news releases and presentations to
securities analysts or investors contain forward-looking statements made in good
faith by the Company pursuant to the "Safe Harbor" provisions of the PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. These statements relate to
non-historical information and include, without limitation, any statement that
may predict, forecast, indicate or imply future results, performance or
achievements. Forward-looking statements involve risks and uncertainties that
could cause actual results to differ materially from those presently anticipated
or projected. The Company wishes to caution the reader not to place undo
reliance on any such forward-looking statements. These statements are qualified
by potential risks and uncertainties detailed from time to time in reports filed
by the Company with the S.E.C., including Forms 10-Q and 10-K, and include,
among others, lower demand for televisions and computer monitors; further mask
price declines; successful customer part qualifications; liability and other
claims asserted against the Company; inability to penetrate the lead frame
market; new product development, introduction and acceptance; successful cost
reduction and reorganization efforts; potential losses on cross-currency swaps;
higher operating expenses and lower yields associated with production start-up;
negative foreign currency fluctuations, including adverse fluctuations affecting
cross-currency swaps; inability to partner with new BMSP customers; the impact
of Y2K information systems issues; the effect of the economic uncertainty in
Asia; and a potential economic slowdown in other parts of the world such as
South America. These and other factors are more particularly described in "Item
1 - Business" of the Company's Form 10-K and in some cases have affected and in
the future could adversely affect the Company's actual results, thereby causing
the Company's actual financial performance to differ materially from that
expressed in any forward-looking statement. These factors should not, however,
be considered an exhaustive list. The Company does not undertake the
responsibility to update any forward-looking statement that may be made from
time to time by or on behalf of the Company. Investors should also be aware that
while the Company does, from time to time, communicate with securities analysts,
it is against BMC's policy to disclose to them any material non-public
information or other confidential commercial information. Accordingly,
shareholders should not assume that the Company agrees with any statement or
report issued by any analyst irrespective of the content of the statement or
report. In addition, BMC does not issue or confirm financial forecasts or
projections issued by others. Thus, to the extent that reports issued by
securities analysts contain any projections, forecasts or opinions, such reports
are not the responsibility of BMC.
18 / BMC INDUSTRIES, INC.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 335,138 $ 312,538 $ 280,487
Cost of products sold 297,995 244,468 213,007
----------------------------------------------
Gross margin 37,143 68,070 67,480
Selling 15,496 11,696 10,028
Administrative 5,179 4,316 5,005
Impairment of long-lived assets 42,800 -- --
Acquired in-process research and development 9,500 -- --
----------------------------------------------
Income (Loss) from Operations (35,832) 52,058 52,447
----------------------------------------------
Other Income and (Expense)
Interest income 163 233 260
Interest expense (13,537) (1,298) (540)
Other income, net 522 209 236
----------------------------------------------
Earnings (Loss) before Income Taxes (48,684) 51,202 52,403
Income Tax (Benefit) Expense (18,049) 15,481 17,302
----------------------------------------------
Net Earnings (Loss) $ (30,635) $ 35,721 $ 35,101
----------------------------------------------
Earnings (Loss) Per Share
Basic $ (1.13) $ 1.30 $ 1.29
Diluted (1.13) 1.25 1.24
----------------------------------------------
Number of Shares Included in Per Share Computation
Basic 27,014 27,583 27,268
Diluted 27,014 28,530 28,363
----------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
BMC INDUSTRIES, INC. / 19
<PAGE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,028 $ 2,383
Trade accounts receivable, less allowances of $2,624 and $2,118 39,163 29,824
Inventories 82,853 70,111
Deferred income taxes 14,603 5,881
Other current assets 14,347 13,595
-----------------------------
Total Current Assets 151,994 121,794
-----------------------------
Property, Plant and Equipment, Net 162,594 182,382
Deferred Income Taxes 5,431 1,429
Intangible Assets, Net 73,178 2,948
Other Assets, Net 6,268 10,854
-----------------------------
Total Assets $ 399,465 $ 319,407
-----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 1,929 $ 1,139
Accounts payable 28,315 25,623
Accrued compensation and benefits 10,939 11,614
Income taxes payable 3,375 2,830
Other current liabilities 12,465 5,674
-----------------------------
Total Current Liabilities 57,023 46,880
-----------------------------
Long-Term Debt 187,266 73,426
Other Liabilities 18,372 17,718
Deferred Income Taxes 3,547 2,631
Stockholders' Equity
Common stock (shares issued of 27,173 and 27,811) 47,714 62,263
Retained earnings 86,436 118,693
Accumulated other comprehensive income 1,113 (1,217)
Other (2,006) (987)
-----------------------------
Total Stockholders' Equity 133,257 178,752
-----------------------------
Total Liabilities and Stockholders' Equity $ 399,465 $ 319,407
-----------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
20 / BMC INDUSTRIES, INC.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON RETAINED COMPREHENSIVE
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 STOCK EARNINGS INCOME OTHER TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 $ 52,974 $ 50,962 $ 5,749 $ (1,219) $ 108,466
Comprehensive Income:
Net earnings -- 35,101 -- -- 35,101
Translation adjustment -- -- (1,775) -- (1,775)
---------
Total comprehensive income 33,326
---------
Exercise of options, 315 shares, including tax benefit 3,593 -- -- -- 3,593
Restricted stock grants, net of forfeitures
and including tax benefits (16) -- -- -- (16)
Repayments of employee loans for option exercises,
net of additional loans -- -- -- 173 173
Cash dividends declared -- $0.0525 per share -- (1,434) -- -- (1,434)
---------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 56,551 84,629 3,974 (1,046) 144,108
Comprehensive Income:
Net earnings -- 35,721 -- -- 35,721
Translation adjustment -- -- (5,191) -- (5,191)
---------
Total comprehensive income 30,530
---------
Exercise of options, 428 shares, including tax benefit 5,697 -- -- -- 5,697
Restricted stock grants, net of forfeitures
and including tax benefits 15 -- -- -- 15
Repayments of employee loans for option exercises,
net of additional loans -- -- -- 59 59
Cash dividends declared -- $0.06 per share -- (1,657) -- -- (1,657)
---------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 62,263 118,693 (1,217) (987) 178,752
Comprehensive Income:
Net loss -- (30,635) -- -- (30,635)
Translation adjustment -- -- 2,330 -- 2,330
---------
Total comprehensive income (28,305)
---------
Repurchase of 1,000 shares of Company stock (16,636) -- -- -- (16,636)
Exercise of options, 345 shares, including tax benefit 2,048 -- -- -- 2,048
Restricted stock grants, net of forfeitures
and including tax benefits 39 -- -- -- 39
Employee loans for option exercises, net of repayments -- -- -- (1,019) (1,019)
Cash dividends declared -- $0.06 per share -- (1,622) -- -- (1,622)
---------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 $ 47,714 $ 86,436 $ 1,113 $ (2,006) $ 133,257
---------------------------------------------------------------------
</TABLE>
COMMON STOCK: 99,000 SHARES OF VOTING COMMON STOCK WITHOUT PAR VALUE AUTHORIZED;
27,173, 27,811 AND 27,381 SHARES ISSUED AND OUTSTANDING AT DECEMBER 31, 1998,
1997 AND 1996, RESPECTIVELY.
UNDESIGNATED STOCK: 500 SHARES AUTHORIZED, OF WHICH 200 SHARES WERE DESIGNATED
AS SERIES A JUNIOR PARTICIPATING PREFERRED SHARES ON JUNE 30, 1998 IN CONNECTION
WITH THE COMPANY'S ADOPTION OF A SHARE RIGHTS PLAN. THE BOARD OF DIRECTORS IS
AUTHORIZED TO DESIGNATE THE NAME OF EACH CLASS OR SERIES OF THE UNDESIGNATED
SHARES AND TO SET THE TERMS THEREOF (INCLUDING, WITHOUT LIMITATION, TERMS WITH
RESPECT TO REDEMPTION, DIVIDEND, LIQUIDATION, CONVERSION AND VOTING RIGHTS AND
PREFERENCES).
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
BMC INDUSTRIES, INC. / 21
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET EARNINGS (LOSS) $ (30,635) $ 35,721 $ 35,101
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Depreciation and amortization 21,014 13,349 10,171
Impairment of long-lived assets 42,800 -- --
Acquired in-process research and development 9,500 -- --
Provisions for product returns, uncollectable trade receivables
and inventory reserves 11,985 2,322 4,358
Deferred income taxes (11,939) 4,347 (460)
Other noncash income and expense items (933) (864) (1,489)
DECREASE (INCREASE) IN ASSETS
Trade accounts receivable (4,915) (7,308) (3,482)
Inventories (11,621) (23,066) (19,599)
Other current assets (616) (5,296) (3,471)
Other noncurrent assets 4,782 (3,051) (217)
INCREASE (DECREASE) IN LIABILITIES
Accounts payable (560) 6,438 (785)
Income taxes payable 581 (4,248) (1,300)
Accrued expenses and other current liabilities (1,995) (2,568) 3,585
Other noncurrent liabilities (500) (1,109) (1,626)
---------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 26,948 14,667 20,786
---------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (21,427) (75,110) (54,662)
Business acquisitions, net of cash acquired (101,000) (1,817) --
Proceeds from sale of property and equipment -- 60 --
---------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (122,427) (76,867) (54,662)
---------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings 723 (130) 1,257
Increase in long-term debt 110,601 58,135 16,950
Common stock issued, including tax benefit 2,087 5,712 3,577
Common stock repurchased (16,636) -- --
Cash dividends paid (1,632) (1,650) (1,361)
Employee (loans) for exercise of stock options, net of repayments (1,019) 59 173
---------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 94,124 62,126 20,596
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS -- (87) (50)
---------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,355) (161) (13,330)
Cash and cash equivalents at beginning of year 2,383 2,544 15,874
---------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,028 $ 2,383 $ 2,544
---------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
22 / BMC INDUSTRIES, INC.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The Consolidated Financial Statements include the accounts of the Company
and its subsidiaries, all of which are wholly or majority-owned.
REVENUE RECOGNITION -- Revenue related to the majority of the Company's
products is recognized upon shipment of product to the customer.
CASH EQUIVALENTS -- Consist of highly liquid debt instruments with a
maturity of three months or less at the date of purchase. These instruments are
carried at cost, which approximates fair market value.
INVENTORIES -- Stated at the lower of cost or market. Cost is determined
principally on the average cost method. Provision for potentially obsolete or
slow-moving inventory is made based on management's analysis of inventory levels
and future sales forecasts.
PROPERTY, PLANT AND EQUIPMENT -- Stated at cost. Depreciation is provided on
the straight-line method over estimated useful lives of generally 40 years for
buildings, 20 years for building improvements and infrastructure, and eight
years for machinery and equipment. Depreciation of assets included in
construction in progress does not begin until the construction is complete and
the assets are placed into service. Depreciation expense for the year ended
December 31, 1998 was $18,980.
Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets," prescribes that an impairment loss be recognized in the
event that facts and circumstances indicate that the carrying amount of an asset
may not be recoverable, and the estimated future undiscounted cash flows related
to the asset are less than the carrying amount of the asset. The Company
recorded a charge of $26,700 after-tax ($42,800 pre-tax) during the quarter
ended June 30, 1998 for the write-down of certain Precision Imaged Products
(PIP) operations fixed assets. See Note 6 for further discussion.
INTANGIBLE ASSETS -- Consist primarily of goodwill and other
acquisition-related intangible assets which are stated at cost or at fair value
as of the date acquired in a business acquisition accounted for as a purchase,
less accumulated amortization. Amortization is computed on a straight-line basis
over estimated useful lives of seven to 30 years. Amortization expense for the
year ended December 31, 1998 was $2,034.
INCOME TAXES -- A deferred tax liability is recognized for temporary
differences between financial reporting and tax reporting that will result in
taxable income in future years. A deferred tax asset is recognized for temporary
differences that will result in tax deductions in future years.
POST-RETIREMENT BENEFITS OTHER THAN PENSIONS -- The Company accrues the
expected cost of providing post-retirement benefits other than pensions during
the years that eligible employees render service.
EARNINGS PER SHARE -- The basic earnings per share amounts are determined
based on the weighted average common shares outstanding while the diluted
earnings per share amounts also give effect to the common shares dilutive
potential. For the Company's earnings per share calculations, the basic and
diluted weighted average outstanding share amounts differ only due to the
dilutive impact of stock options.
STOCK-BASED COMPENSATION -- The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25), and related interpretations in accounting for its employee stock options.
Under APB 25, because the exercise price of employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recorded. The Company has adopted the disclosure-only provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation."
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS -- Effective January 1, 1998, the Company adopted
SFAS No. 130, "Reporting Comprehensive Income," which requires disclosure of
comprehensive income and its components in the Company's financial statements.
SFAS No. 130 requires foreign currency transla-
BMC INDUSTRIES, INC. / 23
<PAGE>
tion adjustments, which prior to adoption were reported separately in
stockholders' equity, to be included in comprehensive income. Disclosures of
comprehensive income and its components in prior year financial statements have
been restated, where appropriate, to conform to the requirements of SFAS No.
130.
Effective in the year ended December 31, 1998, the Company adopted SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 superseded SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The adoption of SFAS No. 131 did not affect results of
operations or financial position.
Effective January 1, 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Post-retirement Benefits." The statement
supersedes the disclosure requirements in SFAS No. 87, "Employers' Accounting
for Pensions," SFAS No. 88, "Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits," and SFAS No. 106,
"Employers' Accounting for Post-retirement Benefits Other Than Pensions." The
overall objective of SFAS No. 132 is to improve and standardize disclosures
about pensions and other post-retirement benefits and to make the required
information more understandable. The adoption of SFAS No. 132 did not affect
results of operations or financial position, but did affect the disclosures for
pensions and other post-retirement benefits.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Similar Financial Instruments and for Hedging Activities." The new Statement
will significantly change how companies account for derivatives and hedging
activities, including the following two key elements: (1) all derivatives will
be measured at fair value and recognized in the balance sheet as assets or
liabilities and (2) derivatives meeting certain criteria could be specifically
designated as a hedge. The Company is currently evaluating the impact of
adoption of this Statement which is effective for the Company in the year 2000.
RECLASSIFICATION -- Certain items in the 1997 and 1996 Consolidated
Financial Statements have been reclassified to conform to the 1998 presentation.
These reclassifications had no impact on net income or stockholders' equity as
previously reported.
2. BUSINESS ACQUISITION
On May 15, 1998, the Company, through a wholly owned subsidiary, acquired
the Orcolite business unit of the Monsanto Company (Orcolite) for the cash
purchase price of $101,000. For financial statement purposes, the acquisition
has been accounted for under the purchase method of accounting with the excess
of the purchase price over the fair value of the net tangible assets acquired
recorded as intangible assets which are being amortized over periods ranging
from seven to 30 years.
In addition, in accordance with generally accepted accounting principles,
the independently appraised value of acquired in-process research and
development purchased in conjunction with the acquisition was written-off as a
charge of $9,500 (pre-tax) during the second quarter of 1998. The appraised
value represents the estimated fair value of in-process R&D based on
risk-adjusted cash flows related to the in-process R&D projects. At the date of
the acquisition, the development of these projects had not reached technological
feasibility, and these projects had no alternative future uses. There is no
assurance that the in-process projects will be completed, or that they will meet
either technological or commercial success.
The consolidated statements of operations reflect the operations of Orcolite
after May 15, 1998. The following unaudited pro forma information presents a
summary of consolidated results of operations of the Company and the Orcolite
business unit as if the acquisition had occurred at the beginning of fiscal
1997, with pro forma adjustments to give effect to amortization of goodwill and
other intangible assets, depreciation expense on the fair value of property,
plant and equipment and interest expense on acquisition debt, together with the
related income tax effects. The pro forma adjustments do not include the $9,500
write-off of acquired in-process research and development discussed above.
24 / BMC INDUSTRIES, INC.
<PAGE>
<TABLE>
<CAPTION>
Unaudited
Years Ended December 31 1998 1997
- ------------------------------------------------------------
<S> <C> <C>
Revenues $ 349,356 $ 341,911
Net earnings (loss) (32,253) 32,198
Diluted earnings per share (1.19) 1.13
--------------------------
</TABLE>
The unaudited pro forma condensed combined financial information above is
not necessarily indicative of what actual results would have been had the
acquisition occurred at the date indicated. Also, the anticipated financial
impact resulting from business synergies has not been reflected in the above pro
forma financial information. Such synergies include the following: consolidation
of selling, marketing, distribution, customer service and administrative
functions; consolidation of research and development and technical services
functions; optimization of combined production capacity; and improved purchasing
leverage.
3. INVENTORIES
The following is a summary of inventories at December 31:
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------
<S> <C> <C>
Raw materials $ 24,845 $ 24,542
Work in process 9,047 15,971
Finished goods 48,961 29,598
------------------------
Total inventories $ 82,853 $ 70,111
------------------------
</TABLE>
4. OTHER ASSETS AND LIABILITIES
The following is a summary of other current assets at December 31:
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------
<S> <C> <C>
Federal income tax refundable $ 5,304 $ 5,628
Molds used to produce eyewear
lenses 5,116 4,169
Other 3,927 3,798
------------------------
Total other current assets $14,347 $13,595
------------------------
</TABLE>
The following is a summary of other current liabilities at December 31:
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
Accrued acquisition-related expenses $ 4,699 $ --
Other 7,766 5,674
-------------------------
Total other current liabilities $ 12,465 $ 5,674
-------------------------
</TABLE>
The following is a summary of other long-term liabilities at December 31:
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------
<S> <C> <C>
Accrued foreign pension cost $ 9,573 $ 8,042
Employee retirement obligations 4,660 4,991
Other 4,139 4,685
------------------------
Total other long-term liabilities $ 18,372 $ 17,718
------------------------
</TABLE>
5. INTANGIBLE ASSETS
The following is a summary of intangible assets at December 31:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------
<S> <C> <C>
Goodwill $ 64,113 $ 3,719
Other 11,877 7
-----------------------
Total 75,990 3,726
Less accumulated amortization (2,812) (778)
-----------------------
Total intangible assets $ 73,178 $ 2,948
-----------------------
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment at December 31:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------
<S> <C> <C>
Land and improvements $ 5,475 $ 3,523
Buildings and improvements 98,423 114,631
Machinery and equipment 165,486 151,410
Construction in progress 7,246 13,506
-------------------------
Total 276,630 283,070
Less accumulated depreciation
and amortization (114,036) (100,688)
-------------------------
Total property, plant and
equipment, net $ 162,594 $ 182,382
-------------------------
</TABLE>
The Company recorded a charge of $26,700 after-tax ($42,800 pre-tax) during
the quarter ended June 30, 1998 for the write-down of certain Precision Imaged
Products (PIP) operations fixed assets, primarily those related to the
production of computer monitor masks. After careful assessment of various
factors relevant to these assets, including significant declines in sales prices
within the computer monitor mask market, management determined it was
BMC INDUSTRIES, INC. / 25
<PAGE>
appropriate to write down the value of these assets and, accordingly, such
assets were written down to estimated fair value based on estimated discounted
future cash flows in accordance with SFAS No. 121.
7. DEBT
The following is a summary of long-term debt at December 31:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------
<S> <C> <C>
U.S. revolving credit facility $ 178,700 $ 64,250
German credit facility 7,056 8,712
Other 3,439 1,603
------------------------
189,195 74,565
Less amounts due within one year (1,929) (1,139)
------------------------
Total long-term debt $ 187,266 $ 73,426
------------------------
</TABLE>
During the second quarter of 1998, the Company entered into a new five-year
revolving domestic credit agreement, as amended (the Agreement), with a
syndicate of banks for secured borrowings totaling up to $250,000. This
agreement is secured by a pledge of certain shares of common stock of the
Company's subsidiaries. Borrowings under the Agreement bear interest at the
Eurodollar Rate plus 0.5% to 1.625% (6.875% at December 31, 1998). The rate
spread is dependent upon the Company's ratio of debt to cash flow, as defined.
In addition, the Company pays a facility fee on unborrowed funds at rates
ranging from 0.225% to 0.475% (0.475% at December 31, 1998), depending on the
Company's debt to cash flow ratio. Under terms of the Agreement, the Company
must meet certain financial covenants, including maintaining a specified
consolidated net worth, leverage ratio (debt to cash flow), interest coverage
ratio and level of capital expenditures. The Company was in compliance with all
covenants under the Agreement and had borrowings of $178,700 under the Agreement
at December 31, 1998.
The Company's German subsidiary maintains short-term credit lines of $2,400
and long-term credit lines of $21,600. The short-term credit lines are unsecured
and bear interest at either 0.75% over the DM LIBOR rate or approximately 3.0%
over the German Bundesbank Discount rate. The short-term credit lines may be
withdrawn by the lender at any time. The weighted average interest rate on
short-term debt outstanding at December 31, 1998 and 1997 was 5.5% and 7.0%,
respectively. A portion of the long-term credit line is secured by land and
buildings with a net book value of $13,709 at December 31, 1998. These long-term
credit lines bear interest at 0.50% to 0.75% over the DM LIBOR rate.
In March 1997, the Company entered into an interest rate swap agreement that
allows the Company to swap a variable interest rate for a fixed interest rate of
6.365% on $15,000 of notional debt for a period of two years ending March 1999.
In August 1998, the Company entered into additional multiple interest rate swap
agreements for a total of $100 million of notional debt which provide for the
Company to swap a variable interest rate for fixed interest rates ranging from
5.74% to 5.76% plus a specified spread depending on the swap involved (7.12% to
7.14% including current spread of 1.375%). These swaps expire at various dates
ranging from July 1999 to August 2000. The notional amount of debt is not a
measure of the Company's exposure to credit or market risks and is not included
in the condensed consolidated balance sheet. Fixing the interest rate minimizes
the Company's exposure to the uncertainty of floating interest rates during this
two-year period. Amounts to be paid or received under the interest rate swap
agreement are accrued and recorded as an adjustment to Interest Expense during
the term of the interest rate swap agreement.
In October and November 1998, the Company entered into cross-currency swaps
which provided for the Company to swap $20,000 of notional debt for the
equivalent amount of Japanese yen-denominated debt. These swaps were
subsequently closed out in November 1998. Under these swaps, the Company also
effectively swapped a U.S. dollar-based interest rate of 5.5% for a Japanese
yen-based interest rate of 1.1%. These Japanese yen-based debt derivatives were
accounted for under mark-to-market accounting. The Company recognized a pre-tax
gain of $890 under these swap agreements in 1998. In January 1999, the Company
entered into an agreement to swap $10,000 of notional debt for the equivalent
amount of Japanese yen-denominated debt. This swap also effectively swapped a
U.S. dollar-based interest rate of 5.10% for a Japanese yen-based interest rate
of 1.05% and expires in January 2002.
On December 31, 1998 and 1997, the estimated fair value of the Company's
debt described above approximates the recorded amount.
Annual maturities of long-term debt for the next five years are $1,929 in
1999, $7,767 in 2000, $633 in 2001, $126 in 2002 , $178,710 in 2003 and $30
thereafter.
26 / BMC INDUSTRIES, INC.
<PAGE>
There were $1,000 of outstanding letters of credit at December 31, 1998.
Interest expense paid, net of amounts capitalized of $685, $2,609 and $302,
was $11,456, $660 and $15 in 1998, 1997 and 1996, respectively.
8. COMMITMENTS
The Company leases four manufacturing facilities, 17 sales, distribution or
administrative facilities and the Company headquarters. In addition, the Company
leases data processing and other equipment.
At December 31, 1998, the approximate future minimum rental commitments
required under non-cancelable operating leases are as follows:
<TABLE>
- -----------------------------------------------------------
<S> <C>
1999 $ 973
2000 929
2001 876
2002 864
2003 619
Thereafter 90
-----------
Total minimum lease payments $ 4,351
-----------
</TABLE>
Rent expense was $1,079, $1,892, and $2,535 in 1998, 1997 and 1996,
respectively.
The Company's Vision-Ease subsidiary has entered into a long-term Product
Manufacturing and Sales Agreement (the Supply Agreement) with a plastic lens
manufacturer located in Southeast Asia. The Supply Agreement provides for the
Southeast Asian manufacturer to supply, and Vision-Ease to purchase, certain
minimum levels of plastic lenses. At December 31, 1998, the approximate future
purchase commitments under this Supply Agreement were as follows:
<TABLE>
- -----------------------------------------------------------
<S> <C>
1999 $ 8,000
2000 8,900
-----------
</TABLE>
The Company's German subsidiary has a significant portion of its sales
denominated in U.S. dollars (approximately 31% and 28% in 1998 and 1997,
respectively). As most of the German subsidiary's expenses are denominated in
the German mark, this represents the most significant element of the Company's
direct exposure to currency rate fluctuations. This exposure is generally
addressed as needed through the purchase of forward contracts and options. At
December 31, 1998, there were no outstanding forward contracts or options. As of
December 31, 1997, the Company had approximately $3,600 of outstanding foreign
currency exchange options to exchange U.S. dollars for German marks at a set
exchange rate. These foreign exchange options do not expose the Company to
financial risk as the contracts provide an option to exchange the currencies,
but do not obligate the Company to make a foreign currency exchange. Premiums
paid for foreign currency exchange options are amortized to Other Expense over
the life of the options. Upon exercise of foreign currency exchange options,
gains are recorded as a reduction of Cost of Products Sold.
At December 31, 1998, the Company had commitments of approximately $3,200
related to capital projects.
9. STOCK OPTIONS/AWARDS AND STOCK REPURCHASES/OTHER
The 1994 Stock Incentive Plan (the 1994 Plan) provides for the granting of
either incentive stock options or nonqualified stock options to purchase shares
of the Company's common stock and for other stock-based awards to officers,
directors and key employees responsible for the direction and management of the
Company and to non-employee consultants and independent contractors. At December
31, 1998, 2,984 shares of common stock were reserved for issuance under the 1994
Plan and for outstanding options under the 1984 Omnibus Stock Plan, which
terminated on January 10, 1994. The reserved shares included 655 shares
available for awards under the 1994 Plan.
BMC INDUSTRIES, INC. / 27
<PAGE>
Information relating to stock options during 1998, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
OPTION PRICE
NUMBER PER SHARE TOTAL
OF SHARES AVERAGE PRICE
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Shares under option at
December 31, 1995 2,363 $ 5.18 $ 12,236
Granted 87 26.99 2,362
Exercised (315) 2.79 (882)
Forfeited (15) 8.71 (131)
- -----------------------------------------------------------------------------
Shares under option at
December 31, 1996 2,120 6.41 13,585
Granted 611 23.75 14,513
Exercised (428) 3.81 (1,631)
Forfeited (78) 15.15 (1,182)
- -----------------------------------------------------------------------------
Shares under option at
December 31, 1997 2,225 11.36 25,285
Granted 902 9.38 8,465
Exercised (345) 4.70 (1,621)
Forfeited (201) 13.78 (2,769)
Terminated (252) 16.40 (4,134)
- -----------------------------------------------------------------------------
Shares under option at
December 31, 1998 2,329 $ 10.83 $ 25,226
- -----------------------------------------------------------------------------
Shares exercisable at
December 31, 1998 942 $ 7.07 $ 6,660
- -----------------------------------------------------------------------------
Shares exercisable at
December 31, 1997 908 $ 4.18 $ 3,797
- -----------------------------------------------------------------------------
Shares exercisable at
December 31, 1996 1,035 $ 3.04 $ 3,149
- -----------------------------------------------------------------------------
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------------- -------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ----------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
$ 0 - 5 722 3.9 $ 2.86 591 $ 2.59
5 -10 910 7.9 7.15 189 7.51
10 - 20 213 6.8 18.05 50 16.84
20 - 31 484 7.2 26.47 112 25.63
- ----------------------------------------------------------- -------------------------
2,329 6.4 $ 10.83 942 $ 7.07
- ----------------------------------------------------------- -------------------------
</TABLE>
All outstanding options are nonqualified options. No compensation expense
related to stock option grants was recorded in 1998, 1997 or 1996 as the option
exercise prices were equal to fair market value on the date of grant.
At December 31, 1998, there were 23 shares outstanding pursuant to other
stock-based awards under the 1994 Plan.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.50% 5.71% 6.21%
Dividend yield 0.96% 0.30% 0.19%
Volatility factor 0.55 0.47 0.39
Weighted average expected life 5 years 5 years 5 years
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options using the Black-Scholes option pricing model is amortized to expense
over the options' vesting period.
28 / BMC INDUSTRIES, INC.
<PAGE>
The Company's pro forma net earnings and earnings per share were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings - as reported $ (30,635) $ 35,721 $ 35,101
Net earnings - pro forma (32,006) 34,926 34,746
Basic earnings per share -
as reported (1.13) 1.30 1.29
Basic earnings per share -
pro forma (1.18) 1.27 1.23
Diluted earnings per share -
as reported (1.13) 1.25 1.24
Diluted earnings per share -
pro forma (1.18) 1.22 1.23
Weighted average fair
value of options granted
during the year 4.52 10.98 11.61
- -------------------------------------------------------------------------------------------------
</TABLE>
Because SFAS No. 123 provides for pro forma amounts for options granted
beginning in 1995, the pro forma expense will likely increase in future years as
the new option grants become subject to the pricing model.
STOCK OPTION EXERCISE LOAN PROGRAM. The Company maintains the Stock Option
Exercise Loan Program under which holders of exercisable stock options may
obtain interest-free and interest-bearing loans from the Company to facilitate
their exercise of stock options. Such full recourse loans are evidenced by
demand promissory notes and are secured by shares of stock. The portion of such
loans directly related to the option exercise price is classified as a reduction
of stockholders' equity. The remainder is included in current assets.
COMMON STOCK REPURCHASES. In January 1998, the Company repurchased 1,000
common shares at a total cost of approximately $16,600. This share repurchase
was financed using the Company's domestic bank credit facility.
SHARE RIGHTS PLAN. In June 1998, the Company adopted a Share Rights Plan and
declared a dividend of one Preferred Share Purchase Right for each outstanding
share of common stock to stockholders of record on July 20, 1998. The Rights
will become exercisable after any person or group acquires or announces a tender
or exchange offer resulting in the beneficial ownership of 15% or more of the
Company's common stock. Each Right entitles shareholders to buy one
five-hundredth of a share of a newly created series of preferred stock at an
exercise price of $75 subject to adjustment upon certain events. If any person
or group acquires 15% or more of the Company's common stock, if the Company is
acquired in a business combination, or if the Company sells 50% or more of its
assets, each Right entitles its holder, other than the person or group acquiring
the common stock, to purchase at the Right's then current exercise price, shares
of the Company's common stock having a value of twice the Right's then current
exercise price. The Rights are redeemable at $0.001 per Right and will expire on
July 20, 2008, unless extended or earlier redeemed by the Company.
10. EMPLOYEE BENEFIT PLANS
The Company maintains a savings and profit sharing plan covering
substantially all of its domestic salaried employees and a majority of those
domestic hourly employees not covered by a pension plan or retirement fund
described below. Under the terms of the profit sharing provision of the plan,
the Company makes an annual minimum contribution equal to 3% of participants'
wages, with the potential for an additional discretionary contribution depending
upon the Company's profitability. Provisions of the profit sharing portion of
the plan include 100% vesting after five years of continuous service and payment
of benefits upon retirement, total disability, death or termination. Under the
terms of the savings portion of the plan, the Company makes an annual minimum
contribution, which is invested in Company stock, equal to 25% of participants'
before-tax contributions up to 6% of base salary, with the potential for an
additional discretionary contribution depending upon the Company's
profitability. Provisions of the savings portion of the plan include vesting of
the Company's contributions at the rate of 25% per year of continuous service
and payment of benefits upon retirement, total disability, death or termination.
One domestic operation has a noncontributory defined benefit pension plan
for its hourly employees. During 1997, the Company curtailed benefits payable
under the plan, resulting in a curtailment loss of $141. Benefits payable under
the plan are based upon various monthly amounts for each year of credited
service. The Company's funding policy meets or exceeds the funding requirements
of federal laws and regulations.
BMC INDUSTRIES, INC. / 29
<PAGE>
In 1989, the Company adopted a supplemental defined benefit retirement plan
for corporate and operations management over 45 years of age. In 1992, the
Company curtailed benefits payable under the plan. The Company's funding policy
is to maintain plan assets approximately equal to the vested benefit obligation.
In addition, the Company's German subsidiary has a noncontributory defined
benefit pension plan covering substantially all of its employees. Benefits
payable under the plan are based upon the participant's base salary prior to
retirement and years of credited service. As allowed under German law, this plan
is not funded. However, under generally accepted accounting principles, the
estimated future liability is accrued in the Company's Consolidated Financial
Statements.
In addition to the defined benefit plans discussed above, the Company has
two defined benefit post-retirement plans covering certain domestic employees.
One plan provides medical benefits and the other provides life insurance
benefits. Under the medical benefits plan, the Company provides a specific
dollar amount to retired salaried employees or their surviving spouses to
purchase coverage through the BMC Flexible Benefits Plan. The annual increase in
these Company provided amounts is limited to 5%. The life insurance plan
provides term life insurance coverage to all retired full-time hourly employees
at one domestic operation. The Company accrues the expected cost of providing
benefits under these two plans during the years that eligible employees render
service. Neither plan is funded. Assumed increases or decreases to health care
trend rates do not have an impact on the Company's post-retirement medical plan
as the Company has a cap on the maximum cost.
The above described defined benefit and post-retirement plans included the
following components:
<TABLE>
<CAPTION>
PENSION BENEFITS POST-RETIREMENT BENEFITS
-------------------- ------------------------
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 12,898 $ 12,636 $ 1,542 $ 1,243
Service cost 497 469 87 73
Interest cost 832 824 108 91
Foreign currency exchange rate changes 739 (1,340) -- --
Actuarial (gain) loss (137) 536 -- 210
Benefit payments (508) (368) (75) (75)
Curtailments -- 141 -- --
-----------------------------------------------------------
Benefit obligation at end of year 14,321 12,898 1,662 1,542
-----------------------------------------------------------
CHANGE IN FAIR VALUE OF PLAN ASSETS
Fair value of plan assets at beginning of year 4,225 3,650 -- --
Actual return on plan assets (334) 783 -- --
Employer contribution -- -- 75 75
Benefit payments (312) (208) (75) (75)
-----------------------------------------------------------
Fair value of plan assets at end of year 3,579 4,225 -- --
-----------------------------------------------------------
FUNDED STATUS
Funded status of the plan (underfunded) (10,742) (8,673) (1,662) (1,542)
Unrecognized transitional amount 90 97 -- --
Unrecognized net loss (gain) 778 150 (147) (147)
-----------------------------------------------------------
Accrued pension cost $ (9,874) $ (8,426) $ (1,809) $ (1,689)
-----------------------------------------------------------
</TABLE>
30 / BMC INDUSTRIES, INC.
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC PENSION COST
Pension benefits:
Service cost $ 497 $ 469 $ 475
Interest cost 832 824 810
Expected return on plan assets (371) (248) (209)
Amortization of transition obligation 15 18 24
Amortization of prior service cost -- 7 12
Recognized actuarial gain (5) (8) --
Curtailment loss -- 141 --
------------------------------------------
Net periodic pension cost $ 968 $ 1,203 $ 1,112
------------------------------------------
Post-retirement benefits:
Service cost $ 87 $ 73 $ 74
Interest cost 108 91 80
Recognized actuarial gain -- (14) (14)
------------------------------------------
Net periodic pension cost $ 195 $ 150 $ 140
------------------------------------------
</TABLE>
Assumptions used in developing the projected benefit obligation and the net
periodic pension cost as of December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------
<S> <C> <C> <C>
Domestic plans (including
post-retirement plan):
Discount rate 6.75% 7.50% 7.50%
Rate of return on
plan assets 9.00% 7.00% 7.00%
Foreign plan:
Discount rate 6.00% 6.30% 7.00%
Rate of increase in
compensation 2.50% 3.00% 3.00%
---------------------------------
</TABLE>
Under a contract with its union employees, one of the Company's domestic
operations makes, on behalf of each active participant, fixed weekly
contributions to a retirement fund (aggregating $173, $145 and $150 in 1998,
1997 and 1996, respectively). At December 31, 1998, the market value of this
fund's assets of $18,350 exceeded benefit obligations of $16,259 by $2,091.
Pursuant to the plan, excess funded amounts are not available to the Company.
The total cost of all profit sharing, savings and pension plans, domestic
and foreign, was $2,708, $3,118 and $4,523 in 1998, 1997 and 1996, respectively.
11. INCOME TAXES
The provision (benefit) for income taxes was based on earnings (loss) before
income taxes, as follows:
<TABLE>
<CAPTION>
Years Ended December 31 1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ (50,756) $ 42,605 $ 47,397
Foreign 2,072 8,597 5,006
--------------------------------------------
Earnings (loss) before
income taxes $ (48,684) $ 51,202 $ 52,403
--------------------------------------------
</TABLE>
The provision (benefit) for income taxes consisted of:
<TABLE>
<CAPTION>
Years Ended December 31 1998 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ (6,223) $ 7,957 $ 13,227
State 75 722 1,931
Foreign 150 2,455 2,604
Deferred
Federal and state (12,722) 2,736 (386)
Foreign 671 1,611 (74)
--------------------------------------
Income tax
expense (benefit) $ (18,049) $ 15,481 $ 17,302
--------------------------------------
</TABLE>
BMC INDUSTRIES, INC. / 31
<PAGE>
Significant components of deferred income tax assets and liabilities were as
follows at December 31:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------
FEDERAL AND STATE NET DEFERRED
INCOME TAXES
<S> <C> <C>
Deferred tax asset
Reserves and accruals $ 6,103 $ 3,583
Depreciation 4,423 --
Compensation and benefit-related
accruals 4,151 4,574
Other temporary differences 3,604 2,180
Tax credit carryovers 2,535 --
------------------------
Total 20,816 10,337
------------------------
Deferred tax liability
Depreciation -- (2,031)
Capitalized molds and tooling (782) (996)
------------------------
Total (782) (3,027)
------------------------
Net deferred tax asset $ 20,034 $ 7,310
------------------------
FOREIGN NET DEFERRED INCOME TAXES
Deferred tax liability
Depreciation $ (4,522) $ (3,264)
Other temporary differences (142) (203)
------------------------
Total (4,664) (3,467)
------------------------
Deferred tax asset
Retirement benefits 710 586
Other temporary differences 343 161
------------------------
Total 1,053 747
------------------------
Net deferred tax liability $ (3,611) $ (2,720)
------------------------
</TABLE>
The federal and state net deferred tax asset included a current portion of
$14,603 and $5,881 at December 31, 1998 and 1997, respectively, and a long-term
portion of $5,431 and $1,429 at December 31, 1998 and 1997, respectively. The
foreign net deferred tax liability included a current liability of $63 and $89
at December 31, 1998 and 1997, respectively, and a long-term liability of $3,547
and $2,631 at December 31, 1998 and 1997, respectively.
The differences between income taxes at the U.S. federal statutory tax rate
and the effective tax rate were as follows:
<TABLE>
<CAPTION>
Years Ended December 31 1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate (35.0)% 35.0% 35.0%
Differences in taxation
of foreign earnings 0.1 2.0 1.5
Foreign income taxed
in the U.S. (1.9) (0.5) --
State income taxes,
net of federal benefit (1.4) 1.3 2.6
Change in deferred tax
valuation allowance -- (7.2) (5.4)
Other items 1.1 (0.4) (0.7)
----------------------------------------
Effective tax rate (37.1)% 30.2% 33.0%
----------------------------------------
</TABLE>
Differences in taxation of foreign earnings relate primarily to taxation of
foreign earnings at rates in excess of the U.S. statutory rate. Undistributed
earnings of foreign subsidiaries at December 31, 1998 were approximately
$14,229. No U.S. taxes have been provided on these undistributed earnings
because the Company expects to be able to utilize foreign tax credits to offset
any U.S. tax that would result from their distribution.
Income taxes (refunded) paid were $(8,571), $17,447 and $17,039 in 1998,
1997 and 1996, respectively.
12. SEGMENT INFORMATION
The Company has two operating segments which manufacture and sell a variety
of products: Precision Imaged Products and Optical Products. Precision Imaged
Products manufactures principally aperture masks, photochemically etched fine
mesh grids used in the manufacture of color television tubes and computer
monitors. Optical Products manufactures ophthalmic lenses. Net sales of aperture
masks comprised 86%, 87% and 88% of Precision Imaged Products segment revenues
in 1998, 1997 and 1996, respectively, and 54%, 61% and 60% of the Company's
consolidated total revenues in 1998, 1997 and 1996, respectively.
32 / BMC INDUSTRIES, INC.
<PAGE>
The following is a summary of certain financial information relating to the
two segments:
<TABLE>
<CAPTION>
Years Ended December 31 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL REVENUES BY SEGMENT
Precision Imaged Products $ 212,083 $ 219,007 $ 192,552
Optical Products 123,055 93,531 87,935
-----------------------------------------------------
Total Revenues $ 335,138 $ 312,538 $ 280,487
-----------------------------------------------------
OPERATING PROFIT (LOSS) BY SEGMENT
Precision Imaged Products
Before corporate allocation and impairment charge $ 1,969 $ 41,489 $ 43,087
Impairment of long-lived assets (42,800) -- --
Less corporate allocation(1) (2,522) (2,314) (2,416)
-----------------------------------------------------
Total (43,353) 39,175 40,671
-----------------------------------------------------
Optical Products
Before corporate allocation and acquired research
and development charge 19,678 14,885 14,365
Acquired in-process research and development (9,500) -- --
Less corporate allocation(1) (1,464) (988) (1,104)
-----------------------------------------------------
Total 8,714 13,897 13,261
-----------------------------------------------------
TOTAL SEGMENT OPERATING PROFIT (LOSS) (34,639) 53,072 53,932
Corporate expense (1,193) (1,014) (1,485)
Interest income (expense), net (13,374) (1,065) (280)
Other income (expense) 522 209 236
-----------------------------------------------------
Earnings (loss) before income taxes $ (48,684) $ 51,202 $ 52,403
-----------------------------------------------------
IDENTIFIABLE ASSETS BY SEGMENT
Precision Imaged Products $ 168,540 $ 218,988 $ 158,276
Optical Products 206,825 81,834 58,617
-----------------------------------------------------
Total Identifiable Assets 375,365 300,822 216,893
Corporate and other assets 24,100 18,585 16,076
-----------------------------------------------------
Total Assets $ 399,465 $ 319,407 $ 232,969
-----------------------------------------------------
DEPRECIATION AND AMORTIZATION BY SEGMENT
Precision Imaged Products $ 13,582 $ 10,457 $ 7,391
Optical Products 7,215 2,670 2,536
Corporate and other 217 222 244
-----------------------------------------------------
Total Depreciation and Amortization $ 21,014 $ 13,349 $ 10,171
-----------------------------------------------------
CAPITAL EXPENDITURES BY SEGMENT
Precision Imaged Products $ 9,764 $ 60,605 $ 49,672
Optical Products 11,526 14,397 4,750
Corporate and other 137 108 240
-----------------------------------------------------
Total Capital Expenditures $ 21,427 $ 75,110 $ 54,662
-----------------------------------------------------
</TABLE>
(1)CORPORATE ALLOCATIONS CONSIST OF ESTIMATED ADMINISTRATIVE EXPENSES INCURRED
AT THE CORPORATE HEADQUARTERS WHICH PROVIDE DIRECT BENEFIT TO THE OPERATING
DIVISIONS.
BMC INDUSTRIES, INC. / 33
<PAGE>
The following is a summary of the Company's operations in different
geographic areas:
<TABLE>
<CAPTION>
Years Ended December 31 1998 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
TOTAL REVENUES FROM
UNAFFILIATED CUSTOMERS
United States $ 233,142 $ 199,825 $ 187,430
Germany 94,181 104,384 85,667
Other 7,815 8,329 7,390
--------------------------------------
Total $ 335,138 $ 312,538 $ 280,487
--------------------------------------
LONG-LIVED ASSETS
United States $ 124,543 $ 150,576 $ 92,013
Germany 30,052 27,178 31,787
Other 7,999 4,628 45
--------------------------------------
Total $ 162,594 $ 182,382 $ 123,845
--------------------------------------
</TABLE>
The Company evaluates segment performance based on profit or loss from
operations before interest, other expense, taxes and charges for corporate
administration. Revenues by geographic area are based upon revenues generated
from each country's operations. Net sales to unaffiliated foreign customers from
domestic operations (export sales) in 1998, 1997 and 1996 were $40,820, $47,913
and $43,492, or 12%, 15% and 16%, respectively, of total revenues. Precision
Imaged Products had sales to one customer of $56,983, $62,062 and $52,899; to
another customer of $51,785, $48,963 and $33,435; to a third customer of
$33,801, $33,336 and $32,417; and to a fourth customer of $23,266, $34,101 and
$28,600 in 1998, 1997, and 1996, respectively. Optical Products did not have
sales to any individual customer greater than 10% of total revenues.
13. CONCENTRATIONS OF CREDIT RISK
Approximately 58% of the trade accounts receivable before allowances
(receivables) of Precision Imaged Products at December 31, 1998 were represented
by four customers. Approximately 33% of the receivables of Optical Products at
December 31, 1998 were represented by 20 customers. These 24 customers
represented approximately 45% of the Company's consolidated receivables at
December 31, 1998, with one customer of Precision Imaged Products representing
approximately 20% of consolidated receivables.
Mask Operations' customer base consists of the largest television and
computer monitor manufacturers in the world. Accordingly, Mask Operations
generally does not require collateral and its trade receivables are unsecured.
Optical Products' customer base consists of a wide range of eyewear retailers
and optical laboratories. Optical Products performs detailed credit evaluations
of customers and establishes credit limits as required. Collateral or other
security for accounts receivable is obtained as considered necessary for Optical
Products' customers.
14. LEGAL MATTERS
In January 1995, a U.S. District Court in Miami, Florida, awarded the
Company a $5.1 million judgment against Barth Industries ("Barth") of Cleveland,
Ohio, and its parent, Nesco Holdings, Inc. ("Nesco"). The judgment relates to an
agreement under which Barth and Nesco were to help automate the plastic lens
production plant in Fort Lauderdale, Florida. The Company did not record any
income relating to this judgment because Barth and Nesco filed an appeal. In
November 1998, the U.S. Court of Appeals for the Eleventh Circuit dismissed the
claims against Nesco and remanded the case against Barth to the District Court
for retrial on a narrow issue. The Company is evaluating all options for
pursuing its claims while the case is proceeding to a retrial.
During 1998, workers' compensation claims were filed on behalf of
approximately 175 former employees of the Vision-Ease Fort Lauderdale facility.
These claims all allege that the employees were exposed to toxic chemicals while
working in the Fort Lauderdale facility at various dates between 1979 and 1997.
All claims for benefits have been denied and the case is in the discovery phase.
The Company believes these claims are without merit and intends to vigorously
defend each claim.
BMC is also a defendant in various other suits, claims and investigations
which arise in the normal course of business. In the opinion of the Company's
management, the ultimate disposition of these matters, including those matters
described above, will not have a material adverse effect on the consolidated
financial position, liquidity or results of operations of the Company.
34 / BMC INDUSTRIES, INC.
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's common stock is traded on the New York Stock Exchange under
the ticker symbol "BMC". The table below sets forth the high and low reported
sales prices of BMC stock by quarter for the years 1998, 1997 and 1996. At March
24, 1999, there were approximately 1,050 stockholders of record.
<TABLE>
<CAPTION>
DIVIDENDS PRICE
1996 PER SHARE HIGH LOW
- -------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $ .0125 $25 1/8 $ 19 3/4
Second Quarter .0125 32 3/8 21
Third Quarter .0125 31 3/8 24 3/4
Fourth Quarter .0150 31 1/2 26 5/8
- -------------------------------------------------------------
1997
First Quarter $ .0150 $34 1/4 $ 27 5/8
Second Quarter .0150 35 3/8 24
Third Quarter .0150 35 3/16 29 3/4
Fourth Quarter .0150 32 15/16 15 15/16
- -------------------------------------------------------------
1998
First Quarter $ .0150 $21 1/4 $ 15 13/16
Second Quarter .0150 20 3/4 7 5/16
Third Quarter .0150 9 3/16 3 5/16
Fourth Quarter .0150 7 5/16 4 7/16
- -------------------------------------------------------------
</TABLE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
BMC Industries, Inc.
We have audited the accompanying consolidated balance sheets of BMC
Industries, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of BMC Industries,
Inc. at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
January 31, 1999
BMC INDUSTRIES, INC. / 35
<PAGE>
SELECTED QUARTERLY DATA
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
- ---------------------------------------------------------------------------------------------------------------------------
1997
<S> <C> <C> <C> <C> <C>
Revenues $ 77,127 $ 80,257 $ 79,086 $ 76,068 $ 312,538
Gross margin 15,982 21,859 17,273 12,956 68,070
Net earnings 7,883 11,989 8,875 6,974 35,721
Earnings per Share
Basic 0.29 0.44 0.32 0.25 1.30
Diluted 0.28 0.42 0.31 0.24 1.25
Number of shares included in computation
Basic 27,410 27,463 27,681 27,776 27,583
Diluted 28,458 28,496 28,619 28,545 28,530
----------------------------------------------------------------------
1998
Revenues $ 80,084 $ 84,941 $ 88,584 $ 81,529 $ 335,138
Gross margin 11,629 2,861 6,942 15,711 37,143
Net earnings (loss) 3,809 (37,152)* (1,969) 4,677 (30,635)
Earnings (loss) per Share
Basic 0.14 (1.38)* (0.07) 0.17 (1.13)
Diluted 0.14 (1.38)* (0.07) 0.17 (1.13)
Number of shares included in computation
Basic 26,994 26,905 26,989 27,169 27,014
Diluted 27,644 26,905 26,989 27,405 27,014
----------------------------------------------------------------------
</TABLE>
*THE FINANCIAL RESULTS FOR THE SECOND QUARTER OF 1998 HAVE BEEN RESTATED TO
REFLECT A REVISION OF THE ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE TO
$9,500 (PRE-TAX). THE EFFECT OF THE RESTATEMENT DECREASED THE SECOND QUARTER
1998 NET LOSS BY $930 (AFTER-TAX) AND DECREASED THE BASIC AND DILUTED NET LOSS
PER SHARE BY $0.04.
SHAREHOLDER INFORMATION
NYSE LISTING
The common shares of BMC Industries, Inc. are traded on the New York Stock
Exchange, under the symbol BMC.
ANNUAL MEETING
The annual meeting of stockholders will be held at 10 a.m. on Wednesday, May 12,
1999, at the Radisson Hotel South and Plaza Tower, 7800 Normandale Boulevard,
Minneapolis, Minnesota. Meeting notices and proxy materials were mailed to all
stockholders of record as of March 24, 1999.
STOCKHOLDERS' REQUESTS FOR INFORMATION
Requests to transfer the Company's shares should be addressed to the Company's
transfer agent and registrar:
Norwest Bank Minnesota, N.A.
Stock Transfer
P.O. Box 738
161 N. Concord Exchange
South St. Paul, MN 55075-0738
Telephone (800) 468-9716
Telefax (651) 450-4078
For other information regarding your stock holdings and a copy of the annual
report to the Securities and Exchange Commission on Form 10-K, please write to:
BMC Industries, Inc.
Investor Relations Department
One Meridian Crossings
Suite 850
Minneapolis, MN 55423
In addition, these and similar reports can be accessed through
our web site at www.bmcind.com.
AUDITORS
Ernst & Young LLP
Minneapolis, Minnesota
CORPORATE HEADQUARTERS
BMC Industries, Inc.
One Meridian Crossings
Suite 850
Minneapolis, MN 55423
Telephone (612) 851-6000
Telefax (612) 851-6050
36 / BMC INDUSTRIES, INC.
<PAGE>
Exhibit 21.1
SUBSIDIARIES
OF
BMC INDUSTRIES, INC.
1. Buckbee-Mears Europe GmbH
2. BMC Industries Foreign Sales Corporation
3. Buckbee-Mears Hungary Kft.
4. Vision-Ease Lens, Inc.
5. Vision-Ease Lens Azusa, Inc.
6. Vision-Ease Europe Limited
7. Vision-Ease Canada, Ltd.
8. P. T. Vision-Ease Asia, joint venture with P.T. Astron Lensindo Nusa
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of BMC Industries, Inc. of our report dated January 31, 1999, included
in the 1998 Annual Report to Stockholders of BMC Industries, Inc.
Our audits also included the financial statement schedule of BMC Industries,
Inc. listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8, No. 33-2613, No. 33-32389 and No. 33-60937)
pertaining to the BMC Industries, Inc. 1984 Omnibus Stock Program
and in the Registration Statement (Form S-8 No. 33-55089) pertaining to
the BMC Industries, Inc. 1994 Stock Incentive Plan and the related
Prospectuses of our report dated January 31, 1999 with respect to the
consolidated financial statements incorporated herein by reference, and
our report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of BMC
Industries, Inc.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,021
<SECURITIES> 7
<RECEIVABLES> 41,787
<ALLOWANCES> 2,624
<INVENTORY> 82,853
<CURRENT-ASSETS> 151,994
<PP&E> 276,630
<DEPRECIATION> 114,036
<TOTAL-ASSETS> 399,465
<CURRENT-LIABILITIES> 57,023
<BONDS> 0
0
0
<COMMON> 47,714
<OTHER-SE> 85,543
<TOTAL-LIABILITY-AND-EQUITY> 399,465
<SALES> 335,138
<TOTAL-REVENUES> 335,138
<CGS> 297,995
<TOTAL-COSTS> 72,975
<OTHER-EXPENSES> (522)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,537
<INCOME-PRETAX> (48,684)
<INCOME-TAX> (18,049)
<INCOME-CONTINUING> (30,635)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,635)
<EPS-PRIMARY> (1.13)
<EPS-DILUTED> (1.13)
</TABLE>
<PAGE>
Contact: Jeffrey J. Hattara (NYSE-BMC)
(612)851-6030 FOR IMMEDIATE RELEASE
BMC ANNOUNCES QUARTERLY DIVIDEND
December 11, 1998 -- Minneapolis, Minnesota - BMC Industries, Inc. today
announced that its Board of Directors has approved a continuation of its
quarterly cash dividend of $.015 per share.
Shareholders of record as of December 23, 1998 will receive a dividend of
$.015 for each share owned on that date, to be paid on January 6, 1999.
BMC Industries, Inc. is one of the world's largest manufacturers of aperture
masks for color picture tubes used in televisions and computer monitors. The
Company is also a leading producer of polycarbonate, glass and plastic
eyewear lenses. BMC's common stock is traded on the New York Stock Exchange
under the symbol BMC.
-30-
<PAGE>
[LETTERHEAD]
Contact: Jeffrey J. Hattara (NYSE-BMC)
(612) 851-6030 FOR IMMEDIATE RELEASE
BMC REPORTS FOURTH QUARTER 1998 RESULTS
February 1, 1999 -- Minneapolis, Minnesota - BMC Industries, Inc. reported
net income of $4.7 million, or $0.17 per diluted share, for the fourth
quarter of 1998. Excluding the one-time impact of foreign currency gains and
adjustments for certain other non-operating items, fourth quarter net
earnings were $0.12 per diluted share. This compares to net earnings of
$0.24 per diluted share in the fourth quarter of 1997. Total fourth quarter
revenues increased 7% from $76.1 million in 1997 to $81.5 million in 1998.
Paul B. Burke, BMC's Chairman and Chief Executive Officer, stated, "During
the fourth quarter, BMC continued its focus on assimilating the Orcolite
acquisition, reducing costs at the Mask Operations, balance sheet management
and generating cash flow. We successfully reduced our debt balance in the
fourth quarter by $21.3 million which was in addition to our $9.6 million
third quarter debt reduction. We are encouraged by our fourth quarter
operating results and the momentum we carry into 1999."
BMC's Optical Products operation generated sales of $30.0 million in the
fourth quarter, up 34% over the prior year quarter. On a proforma basis,
this compares to $30.6 million of revenue in the fourth quarter of 1997.
Although this represents a 2% decline in overall revenues compared to the
combined Vision-Ease and Orcolite 1997 fourth quarter revenues, sales of
polycarbonate and other high-end products (polycarbonate, high-index,
progressive and polarizing sun lenses) grew 9% over the prior year quarter on
a proforma basis, and 80% in total. High-end sales accounted for 56% of
total Optical Products' revenue in the fourth quarter of 1998 compared to 41%
in the year earlier period. While total fourth quarter sales levels were
lower than anticipated due to year-end inventory adjustments by certain
customers and a general slowdown in retail optical sales, sales of high-end
products remain strong and are Vision-Ease's focus to drive long-term sales
growth. For the full year, Optical Products' sales grew from $93.5 million
in 1997 to $123.1 million in 1998, a 32% increase. Proforma high-end sales
grew 36% for the total year 1998.
- more -
<PAGE>
Vision-Ease's operating earnings increased 62% during the fourth quarter of
1998 over the prior year quarter. The strong fourth quarter gross margin was
driven by the heavy mix of high-end sales. Vision-Ease's selling expense
increased $1.0 million over the prior year quarter as it continues to invest
in the sales and marketing of its premium products.
During the fourth quarter, Vision-Ease released its new progressive lens,
Outlook-Registered Trademark-, in the polycarbonate material.
Outlook-Registered Trademark- is the first progressive lens designed
specifically for polycarbonate. The lens features a super scratch-resistant
Tegra-Registered Trademark- coating and a "short corridor" between the
distance and reading prescriptions which allows the lens to be edged for
today's small frame sizes. Initial orders were received during the fourth
quarter and significant sales and margin contributions are anticipated by the
middle of 1999.
During the fourth quarter, Vision-Ease also began field-testing of the
polycarbonate lens lamination system. Field-testing will continue for
several months followed by a full roll-out of the system which will offer the
Outlook-Registered Trademark- lens and other anti-reflective coated products.
Fourth quarter revenues from the Precision Imaged Products division (PIP,
including both the Mask Operations and Buckbee-Mears St. Paul) decreased 4%
from $53.6 million in 1997 to $51.5 million in 1998. Computer monitor mask
sales were up 29% over the prior year period, moving from $8.8 million in the
prior year quarter to $11.3 million in the fourth quarter of 1998.
Television mask revenues decreased 15% due primarily to lower invar mask
sales and commodity product price declines. Sales of invar television masks
were down 19% compared to the prior year quarter.
Mask Operations' cost reduction and operational improvement efforts are
reflected in the PIP division's fourth quarter operating income of $5.5
million (excluding the impact of the non-operating income items). These
results were achieved despite the continued shutdown of two mask production
lines at the Company's Cortland, New York facility.
Mask Operations continue to face price pressures in both the TV and monitor
mask segments. As a consequence, one TV mask production line is expected to
be idle for the indefinite future. However, due to additional customer
qualifications and increasing demand for monitor masks, production on the
idle monitor mask line at the Cortland facility resumed in January. The
Company anticipates that the costs of starting up this line will have a
negative impact on the Mask Operations through the second quarter of 1999.
For the full year, PIP sales were $212.1 million in 1998 compared to $219.0
million in 1997, a decrease of 3%. Computer monitor sales increased 79%,
moving from $20.5 million in 1997 to $36.7 million in 1998.
Buckbee-Mears St. Paul (BMSP) concluded a record year in both sales and
profitability for 1998. Due to softening economic conditions, however, BMSP
has experienced a reduction in its sales backlog and is expecting sales and
profitability in the first, and possibly second, quarter of 1999 to be lower
than prior year results for the comparable period. BMSP is continuing its
efforts to develop strategic research and development partnerships to help
offset these softening economic conditions.
- more -
<PAGE>
As noted earlier, the fourth quarter 1998 results include pre-tax gains of
$1.3 million related to settlement of foreign currency transactions and
certain foreign currency hedging activities and pre-tax gains of $1.2 million
related to adjustments of certain compensation and pension items. For
financial reporting purposes, $1.5 million of these non-operating items are
included in Other Income while $1.0 million is included in Cost of Products
Sold. These non-operating gains represent approximately $0.05 of earnings
per diluted share.
The Company has also reduced the charge for acquired in-process research and
development (R&D) that was recorded as part of the Orcolite acquisition by
$1.5 million in order to comply with recent Securities and Exchange
Commission interpretations regarding techniques used to value in-process R&D.
Accordingly, the Company will amend its Form 10-Q filings for the second and
third quarters of 1998 to reduce the second quarter in-process R&D charge
from $11 million to $9.5 million. This change has no economic impact on the
Company and will not change the cash flows of the Company. However, this
change will reduce the Company's previously reported second quarter net loss
per share by $0.04.
This press release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 which are intended to be covered by the safe harbors
created thereby. Statements made in this press release which are not
strictly historical, including statements regarding future performance, are
forward-looking statements and as such are subject to a number of risks and
uncertainties, including customer demand for the new Outlook-Registered
Trademark- progressive lens and the polycarbonate lens lamination system,
lower demand for televisions and computer monitors, further mask price
declines, inability to successfully partner with new BMSP customers, foreign
currency fluctuations, successful customer part qualifications, the continued
effect of the economic slowdown in Asia, and a potential economic slowdown in
other parts of the world such as South America. These and other risks and
uncertainties are detailed in the Company's Form 10-K for the year ended
December 31, 1997 and Form 10-Q filed for the quarter ended September 30,
1998.
BMC Industries, Inc. is a leading producer of polycarbonate, glass and
plastic eyewear lenses. The Company is also one of the world's largest
manufacturers of aperture masks for color picture tubes used in televisions
and computer monitors. BMC's common stock is traded on the New York Stock
Exchange under the symbol BMC.
- more -
<PAGE>
BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31 December 31
---------------------------------------------------------------------------
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 81,529 $ 76,068 $ 335,138 $ 312,538
Cost of Products Sold 65,818 63,112 297,995 244,468
- -----------------------------------------------------------------------------------------------------------------------
Gross Margin 15,711 12,956 37,143 68,070
Selling 3,748 3,080 15,496 11,696
Administrative 1,107 682 5,179 4,316
Impairment of long-lived assets - - 42,800 -
Acquired research and development - - 9,500 -
- -----------------------------------------------------------------------------------------------------------------------
Income from Operations 10,856 9,194 (35,832) 52,058
- -----------------------------------------------------------------------------------------------------------------------
Other Income and (Expense)
Interest expense (3,887) (591) (13,537) (1,298)
Interest income 64 90 163 233
Other income (expense) 1,454 (91) 522 209
- -----------------------------------------------------------------------------------------------------------------------
Earnings before Income Taxes 8,487 8,602 (48,684) 51,202
Income Taxes 3,810 1,628 (18,049) 15,481
- -----------------------------------------------------------------------------------------------------------------------
Net Earnings $ 4,677 $ 6,974 $ (30,635) $ 35,721
- -----------------------------------------------------------------------------------------------------------------------
Net Earnings Per Share:
Basic $ 0.17 $ 0.25 $ (1.13) $ 1.30
Diluted 0.17 0.24 (1.13) 1.25
- -----------------------------------------------------------------------------------------------------------------------
Number of Shares Included in Per Share
Computation:
Basic
Diluted 27,169 27,776 27,014 27,583
27,405 28,545 27,014 28,530
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
- more -
<PAGE>
BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
DECEMBER 31 DECEMBER 31
1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,028 $ 2,383
Trade accounts receivable, net 39,163 29,824
Inventories 82,853 70,111
Deferred income taxes 14,603 5,881
Other current assets 14,347 13,595
- ---------------------------------------------------------------------------------------
Total Current Assets 151,994 121,794
- ---------------------------------------------------------------------------------------
Property, plant and equipment 276,630 283,070
Less accumulated depreciation 114,036 100,688
- ---------------------------------------------------------------------------------------
Property, plant and equipment, net 162,594 182,382
- ---------------------------------------------------------------------------------------
Deferred income taxes 5,431 1,429
Intangibles and other assets, net 79,446 13,802
- ---------------------------------------------------------------------------------------
TOTAL ASSETS $ 399,465 $ 319,407
=======================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------
Short-term borrowings $ 1,929 $ 1,139
Accounts payable 28,315 25,623
Income taxes payable 3,375 2,830
Accrued expenses and other current liabilities 23,404 17,288
- ---------------------------------------------------------------------------------------
Total Current Liabilities 57,023 46,880
- ---------------------------------------------------------------------------------------
Long-term debt 187,266 73,426
Other liabilities 18,372 17,718
Deferred income taxes 3,547 2,631
Stockholders' equity
Common stock 47,714 62,263
Retained earnings 86,436 118,693
Cumulative translation adjustment 1,113 (1,217)
Other (2,006) (987)
- ---------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 133,257 178,752
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 399,465 $ 319,407
=======================================================================================
</TABLE>
- more -
<PAGE>
BMC INDUSTRIES, INC.
SEGMENT INFORMATION
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended December 31
------------------------------
Precision Imaged Products Optical Products Consolidated
-------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $51,522 $53,591 $30,007 $22,477 $81,529 $76,068
Cost of Products Sold 44,111 45,943 21,707 17,169 65,818 63,112
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Margin 7,411 7,648 8,300 5,308 15,711 12,956
Gross Margin % 14.4% 14.3% 27.7% 23.6% 19.3% 17.0%
Selling 829 1,151 2,919 1,929 3,748 3,080
Unallocated Corporate
Administration - - - - 1,107 682
- ----------------------------------------------------------------------------------------------------------------------------------
Income from Operations $ 6,582 $ 6,497 $ 5,381 $ 3,379 $10,856 $ 9,194
==================================================================================================================================
Operating Income % 12.8% 12.1% 17.9% 15.0% 13.3% 12.1%
Capital Spending $ 3,225 $ 6,907
Depreciation and
Amortization $ 5,249 $ 2,825
EBITDA $17,559* $12,019
EBITDA % 21.5% 15.8%
</TABLE>
* Includes $2.5 million of non-operating income items.
-30-
<PAGE>
[LETTERHEAD]
Contact: Jeffrey J. Hattara (NYSE-BMC)
(612) 851-6030 FOR IMMEDIATE RELEASE
BMC INDUSTRIES, INC. ANNOUNCES FILING OF
ANTIDUMPING PETITION AGAINST CERTAIN APERTURE
MASKS FROM JAPAN AND SOUTH KOREA
February 24, 1999 -- Minneapolis, Minnesota - BMC Industries, Inc. announced
today that it has filed an antidumping duty petition with the U.S. Department
of Commerce and the U.S. International Trade Commission in Washington, D.C.
against Japanese and South Korean aperture mask manufacturers. BMC's
petition charges certain Japanese and South Korean companies with exporting
AK steel aperture masks into the United States at prices below their cost of
production. The petition further alleges that these companies have unfairly
captured U.S. market share for aperture masks used in color televisions,
which has caused material injury to BMC. If successful, BMC's petition could
result in the imposition of antidumping duties as high as 40% on imports of
AK steel aperture masks from Japan and South Korea.
BMC alleges that this illegal dumping activity forced it to lower its prices
to a harmful level, which resulted in a layoff of several hundred employees
and the shutdown of several manufacturing lines at its Cortland, New York
facility. BMC is seeking immediate relief from the U.S. government to
prevent further damage to U.S. aperture mask manufacturing caused by below
cost imports.
Gary W. Nelson, BMC's Vice President of Worldwide Sales and Marketing for
Mask Operations commented, "For BMC, its employees and its shareholders, this
is a matter of survival. In addition to being forced to lower pricing to
compete with below cost imports, we have lost substantial share in our home
market and cannot withstand further erosion. Japanese and South Korean mask
manufacturers have invested heavily in new plants and equipment resulting in
an overcapacity market. Now, driven by weakened home currencies, these
manufacturers have been pricing for market share in order to fill their lines
and generate cash flow. This unfair pricing strategy does not seek to recover
full manufacturing costs and will continue without governmental intervention."
- more -
<PAGE>
This press release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 which are intended to be covered by the safe harbors
created thereby. Statements made in this press release which are not
strictly historical, including statements regarding future performance, are
forward-looking statements and as such are subject to a number of risks and
uncertainties, including the success of the Company's petition for
antidumping duty relief and the potential amount, if any, of any antidumping
duty actually imposed on Japanese and South Korean aperture mask imports.
Other risks and uncertainties are detailed in the Company's Form 10-K for the
year ended December 31, 1997 and Form 10-Q filed for the quarter ended
September 30, 1998.
BMC Industries, Inc. is one of the world's largest manufacturers of aperture
masks for color picture tubes used in televisions and computer monitors. The
Company is also a leading producer of polycarbonate, glass and plastic
eyewear lenses. BMC's common stock is traded on the New York Stock
Exchange under the symbol BMC.
- 30 -
<PAGE>
[LETTERHEAD]
Contact: Jeffrey J. Hattara (NYSE-BMC)
(612)851-6030 FOR IMMEDIATE RELEASE
BMC ANNOUNCES QUARTERLY DIVIDEND
March 11, 1999 -- Minneapolis, Minnesota - BMC Industries, Inc. today
announced that its Board of Directors has approved a continuation of its
quarterly cash dividend of $.015 per share.
Shareholders of record as of March 24, 1999 will receive a dividend of $.015
for each share owned on that date, to be paid on April 7, 1999.
BMC Industries, Inc. is one of the world's largest manufacturers of aperture
masks for color picture tubes used in televisions and computer monitors. The
Company is also a leading producer of polycarbonate, glass and plastic
eyewear lenses. BMC's common stock is traded on the New York Stock Exchange
under the symbol BMC.
-30-
